Analysis of GBP/USD on May 10th. The Bank of England is likely to raise the rate by another 25 basis points
May 10, 2023 2:24 pm
The wave analysis for the pound/dollar pair still looks complex because it does not look like a classic corrective or impulsive trend section. Since the current upward wave went beyond the peak of the last wave b, the entire downward trend section, consisting of waves a-b-c, can be considered complete. Therefore, the formation of a new upward trend section for the pound continues. Since March 8th, I can only identify one wave of the current scale, so there is every reason to assume that forming a new trend section will take a long time.
Both pairs should construct similar wave formations. If this is indeed the case, wave 2 or b for the pound may be extended, and at the same time, a downward three-wave structure may be constructed for the euro. Thus, I expect a deep wave b, as in the case of constructing the previous three-wave structure. Therefore, it is possible to expect a decline in the pair to 1.1850 or slightly higher. However, at the moment, wave 1 or a continues to become more complex and elongated.
The British currency paused before the Bank of England meeting.
The pound/dollar rate did not change on Wednesday. Strong movements may be observed in the market over the next few hours due to the US inflation report, which I will discuss in a separate article. The report may have already been released at the time of publication of this article. Still, the market reaction within a few hours will remain the current wave picture. Tomorrow, the Bank of England will summarize its third meeting this year, at which the interest rate may increase by 25 basis points. If this happens, it will be the twelfth consecutive rate hike.
Analysts almost unanimously believe that the rate will rise again, as the British economy has held off a recession for several quarters. Inflation remains very high, so the regulator needs to continue tightening monetary policy. Nevertheless, the economic situation in the UK is not very favorable at the moment, and many economic indicators demonstrate negative dynamics. Therefore, each rate hike could be the last.
If the Bank of England raises the rate tomorrow, it will reach a level of 4.5%, which is only 0.75% lower than the Federal Reserve rate. The Federal Reserve rate has always been considered the “starting point” for other central banks. In other words, there is an extremely low probability that the British rate will surpass the American one. Given the UK’s difficult economic situation, a maximum of 1-2 more rate hikes will occur, and the tightening process will be completed.
Demand for the British pound may increase slightly tomorrow against a “hawkish” decision, but the voting results on the rate will also be important. If the number of governors voting “against” the rate hike is more than 2, this may signal the end of the tightening process.
General conclusions.
The wave picture of the pound/dollar pair has long suggested the formation of a new downward wave. The wave analysis is currently ambiguous, as is the news background. I do not see factors supporting the British pound in the long term, and wave b could be very deep, but it has yet to start. A decline in the pair is more likely now, but the first wave of the ascending section continues to become more complex. The unsuccessful attempt to break through the 1.2615 level, corresponding to 127.2% Fibonacci, indicates the market’s readiness for sales.
The picture is similar to the euro/dollar pair on a larger wave scale, but some differences remain. The downward corrective trend section is complete, but at this time, the formation of a downward wave may begin. And this wave can turn out to be deep and extended, and the entire trend section – horizontal, like the previous one.
The material has been provided by InstaForex Company – www.instaforex.com
The wave analysis for the pound/dollar pair still looks complex because it does not look like a classic corrective or impulsive trend section. Since the current upward wave went beyond the peak of the last wave b, the entire downward trend section, consisting of waves a-b-c, can be considered complete. Therefore, the formation of a new upward trend section for the pound continues. Since March 8th, I can only identify one wave of the current scale, so there is every reason to assume that forming a new trend section will take a long time.
Both pairs should construct similar wave formations. If this is indeed the case, wave 2 or b for the pound may be extended, and at the same time, a downward three-wave structure may be constructed for the euro. Thus, I expect a deep wave b, as in the case of constructing the previous three-wave structure. Therefore, it is possible to expect a decline in the pair to 1.1850 or slightly higher. However, at the moment, wave 1 or a continues to become more complex and elongated.
The British currency paused before the Bank of England meeting.
The pound/dollar rate did not change on Wednesday. Strong movements may be observed in the market over the next few hours due to the US inflation report, which I will discuss in a separate article. The report may have already been released at the time of publication of this article. Still, the market reaction within a few hours will remain the current wave picture. Tomorrow, the Bank of England will summarize its third meeting this year, at which the interest rate may increase by 25 basis points. If this happens, it will be the twelfth consecutive rate hike.
Analysts almost unanimously believe that the rate will rise again, as the British economy has held off a recession for several quarters. Inflation remains very high, so the regulator needs to continue tightening monetary policy. Nevertheless, the economic situation in the UK is not very favorable at the moment, and many economic indicators demonstrate negative dynamics. Therefore, each rate hike could be the last.
If the Bank of England raises the rate tomorrow, it will reach a level of 4.5%, which is only 0.75% lower than the Federal Reserve rate. The Federal Reserve rate has always been considered the “starting point” for other central banks. In other words, there is an extremely low probability that the British rate will surpass the American one. Given the UK’s difficult economic situation, a maximum of 1-2 more rate hikes will occur, and the tightening process will be completed.
Demand for the British pound may increase slightly tomorrow against a “hawkish” decision, but the voting results on the rate will also be important. If the number of governors voting “against” the rate hike is more than 2, this may signal the end of the tightening process.
General conclusions.
The wave picture of the pound/dollar pair has long suggested the formation of a new downward wave. The wave analysis is currently ambiguous, as is the news background. I do not see factors supporting the British pound in the long term, and wave b could be very deep, but it has yet to start. A decline in the pair is more likely now, but the first wave of the ascending section continues to become more complex. The unsuccessful attempt to break through the 1.2615 level, corresponding to 127.2% Fibonacci, indicates the market’s readiness for sales.
The picture is similar to the euro/dollar pair on a larger wave scale, but some differences remain. The downward corrective trend section is complete, but at this time, the formation of a downward wave may begin. And this wave can turn out to be deep and extended, and the entire trend section – horizontal, like the previous one.
The material has been provided by InstaForex Company – www.instaforex.com
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