On Friday, New York Fed President John Williams spoke on the topic of rates after Fed Chairman Jerome Powell's announcement of a monetary policy easing in 2024. Powell also said that further rate hikes are unlikely, so this means that the Fed is finished with monetary tightening. The only question is the timing of the rate cut.
John Williams attempted to address this question. He said that the Fed does not intend to rush with rate cuts, as everything will depend not on market expectations and preferences but on specific economic data. Presumably, he referred to the state of the labor market, inflation indicators, and wage growth rates. Williams said rate cuts are not a topic of discussion at the moment for the central bank. The President of the New York Fed also noted that current lending conditions are sufficiently restrictive and stringent to allow inflation to approach the target in the future.
Williams considers the current rate level appropriate: "The rate is at the right or almost the right level." Based on all the above, I can draw the following conclusion. If neither the European Central Bank nor the Fed nor (with a high degree of probability) the Bank of England raises rates, then all three banks will maintain them at the current level for as long as necessary. If inflation is 2.4% in the EU, 3.1% in the U.S., and 4.6% in the UK, it would be logical to assume that the ECB will be the first to start lowering rates, and the BoE will be the last.
If this assumption is correct, then the euro will be under negative pressure at the beginning of 2024 (which is not too far away), fully aligning with the current wave analysis. It's challenging to predict what will happen to the pound at the same time. Possibly, the euro will pull it down. Since the FOMC will also start easing its policy, I don't expect a rapid decline in the euro and the pound. More likely, the construction of the presumed wave 3 or C will extend over many months.
Based on the analysis, I conclude that a bearish wave pattern is still being formed. The pair has reached the targets around the 1.0463 mark, and the fact that the pair has yet to surpass this level indicates that the market is ready to build a corrective wave. Wave 2 or b has taken on a completed form, so in the near future I expect an impulsive descending wave 3 or c with a significant decline in the instrument. I still recommend selling with targets below the low of wave 1 or a. At the moment, wave 2 or b can be considered completed.
The wave pattern for the GBP/USD pair suggests a decline within the descending wave 3 or c. At this time, I can recommend selling the instrument with targets below the 1.2039 mark because wave 2 or b will eventually end, and it could do so at any moment. The longer it takes, the stronger the fall. The peak of the assumed wave c in 2 or b can be used for short positions, and the order limiting possible losses on transactions can be placed above it.
