Confidence in the UK government's ability to lower Britain's fiscal deficit helped sterling build on its prior day gains against the US dollar this morning.
GBP/USD rose to $1.501, where it encountered some resistance. 'Sterling will do OK...it's all about the aftermath of the new UK coalition saying and doing the right thing about the budget deficit,' said Paul Robson, a strategist at RBS. Mr Robson believes that sterling will continue to appreciate in the second half of the year as the nation's fiscal health improves. However, UBS analysts seem to have the opposite view saying sterling may come under pressure as the government's fiscal measures weigh on UK growth, forcing interest rates to remain at a record low. 'Despite the surprise single vote for a rate hike, we remain bearish on sterling,' they said in a note. 'Fiscal tightening will likely encourage the BoE to keep the policy rate at 0.5% until next year, and we expect elevated CPI levels to soften over the coming months.' Meanwhile, last night's Federal Reserve pledge to keep US rates low for an 'extended period' also supported GBP/USD this morning.
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