Fiscal Consolidation Will Cap Sterling Downside

Mirroring the ongoing euro bounce, the British pound continues to edge higher following heavy selling in May. Having hit a low of US$1.4230/GBP on May 20, the subsequent rally has pushed sterling up towards major resistance at US$1.5000/GBP. While likely to be part reflective of investors covering short positions, we believe that the market is also pricing in a major fiscal consolidation program ahead of the emergency budget due to be published tomorrow (June 22).

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