As I have already said, the British dollar has increased by 1,000 basis points in the last two weeks. This growth could be called impressive if it had not collapsed by 1,000 points two weeks earlier. Thus, nothing extraordinary has happened so far. The pound has only recovered after large-scale losses. According to many experts, these losses were associated with a "budget failure." Liz Truss and her government announced a reduction in some taxes, which caused a fair amount of criticism in their address. Some conservatives immediately began to send letters to the relevant Parliamentary committee calling for a vote of no confidence in the new Prime Minister and dismissing the new Finance Minister Kwasi Kwarteng. However, Truss quickly "backed out" and announced that some tax changes would be canceled. Experts have estimated that tax cuts could cost the British government several hundred billion pounds, which would either have to be printed (causing even greater inflation), or borrowed (and then paid back with interest). Therefore, in the end, it was decided that the British would do without tax cuts, at least in the volumes in which it was planned.
On this news, the pound has already begun to recover, but the Bank of England immediately added fuel to the fire, which announced an emergency program for buying long-term bonds. This program, which should be in effect until October 14, is the antipode of the interest rate increase program. Buying bonds means that the Bank of England will splash the cash on the market; that is, the money supply will grow. This is exactly the kind of program the regulator conducted during the pandemic when the economy desperately needed stimulus. Thus, now the Bank of England is simultaneously stimulating the economy and slowing it down. If the British pound did not show a special thirst for life during the "pure braking," then in combination with the new incentive program, it may collapse down again. At least, that's what Commerzbank thinks. Analysts of this bank said that it is extremely important that this program ends on time and the regulator buys as few long-term government bonds as possible. The Bank of England itself has stated that it will interfere as little as possible in the work of the markets, but then why did it announce a bond-buying program?
The British dollar may resume its decline not only because of the need to build a second wave but also because of the actions of the Bank of England. These two events, by the way, may well coincide with each other. However, the stimulus measures must be as weak as possible. The market has met seven rate hikes with no applause, and new incentives may be a verdict for the pound. I do not exclude that the downward section of the trend may still take on a more extended form.
The wave pattern of the pound/dollar instrument suggests a new decline in demand for the pound. I advise now to sell the instrument, as before, on the MACD reversals "down." It is necessary to sell more cautiously since, despite a strong decline, a downward trend section could be constructed. The decline should occur in any case since at least one correction wave is needed. And this implies a reduction of the instrument by 300-400 basis points.
