Annually, the UK GDP contracted by 0.3% on a quarterly basis and by 0.2% annually, according to a first estimate released by the Office for National Statistics. A little earlier this week, Bank of England Governor Andrew Bailey made a statement. It remains unclear whether Bailey already knew in advance that the latest UK GDP data would present a surprise... It seems that he did, as he mentioned the possibility of a technical recession. Although he considers the possibility, BoE's governor still expects an improvement in the UK economy. Bailey said it was not too important whether official data shows the UK economy shrank in the final quarter of 2023 and entered a shallow 'technical' recession. He also thinks it's better to pay attention to positive indicators that show signs of improvement.
British finance minister Jeremy Hunt commented on the GDP report. He said that weak economic growth was not surprising. Hunt said on Thursday the economy was turning a corner (interestingly, in which direction and based on what signs?), and the central bank and the government are considering a shift to a more prudent monetary policy. In my opinion, the last phrase is an eloquent indication that it is time for the BoE not just to think about more prudent rates, but to start lowering them.
I would like to remind you that one of the members of the BoE's Board voted "for" a rate cut at the January meeting, which hasn't happened in many years. Considering the latest inflation and GDP reports, at the next meeting, there might be two or three members voting for a rate cut. I believe that the British central bank is rushing to lower rates for the first time. And this moment may come much sooner than the market expects.
In my opinion, this week's UK data is enough reason for the market to start reducing demand for the pound. The British currency has been gradually declining in recent weeks, but wave 3 or c should be much stronger and faster. In any case, with such a news background, I expect the British pound to fall. This week, we are still waiting for the UK's retail sales report. If it disappoints as well, the conclusion about the pound will become even more obvious.
Based on the analysis, I conclude that a bearish wave pattern is being formed. Wave 2 or b appears to be complete, so in the near future, I expect an impulsive descending wave 3 or c to form with a significant decline in the instrument. The failed attempt to break through the 1.1125 level, which corresponds to the 23.6% Fibonacci, suggests that the market is prepared to sell a month ago. I am currently considering selling.
The wave pattern for the GBP/USD pair suggests a decline. At this time, I am considering selling the instrument with targets below the 1.2039 mark because wave 2 or b will eventually end, just like the sideways trend. I would wait for a successful attempt to break through the 1.2627 level as this will serve as a sell signal. Another signal was formed, in the form of an unsuccessful attempt to break this level from below. Now I am quite confident about the instrument's decline, at least to the 1.2468 level, which would already be a significant achievement for the dollar, as the demand for it remains very low.
