Societe Generale analysts see scope for a relief rally in GBP/USD following the UK Budget and ahead of a potentially hawkish Bank of England hike. They argue the UK is on track for the fastest fiscal consolidation in the G7, which could eventually support Gilts and Sterling. Key cable levels are identified at 1.3250 support and 1.3430 resistance.

Fiscal consolidation and BoE backdrop

The UK budget (decisions on welfare and defense spending postponed, bank profit surcharge tax raised to cut household energy hills), the modest increase in DMO issuance, tailored towards the front-end, was well received by Gilts.

“Though spending risks remain, our economists note that UK is likely to remain the fastest fiscal consolidation among the G7.”

“Conditional on the BoE getting inflation under control, the fiscal outlook and successful EU reset could lead investors to turn more bullish on UK fixed income and sterling over the medium term.”

“Run of four days of profit taking ends in cable, green light for post-Budget relief rally.”

“Hawkish BoE hike next week could add to short covering. Support 1.3250, resistance 1.3430.”

“Support EUR/GBP 0.8355/30 into ECB.”