In previous articles, I repeatedly discussed why the Federal Reserve has all the necessary tools and reasons to keep the interest rate at its current level for as long as needed. By "as long as needed," I certainly do not mean eternity, but a fairly long period. What I mean is that it absolutely makes no sense for the Federal Open Market Committee to lower the interest rate in March or even in May. However, the market, analysts, and economists went ahead and began to "bury" the U.S. economy last year, predicting a recession in 2024 due to the central bank's high rates. Time goes by, we don't see any looming recession, and every quarter U.S. GDP shows a higher value than experts predict. In my opinion, this is a case where the numbers speak for themselves.
A National Association for Business Economics survey showed that 21% of economists polled think the Fed's monetary policy is "too restrictive". Around 25% of respondents believe that the U.S. economy could face a recession this year (in 2023, the number of those expecting a recession was off the charts). About 57% of respondents say budget policies, which have created a huge gap between what the government spends and what it collects in taxes, need to be more disciplined.
I believe this is the second case within this article that speaks for itself. Analysts and economists have changed their views, and now almost no one expects a recession. Only one in five surveyed economists considers the Fed's policy too restrictive. This means that four out of five do not. And this once again proves the strength of the U.S. economy and the Fed's ability to keep rates at their peak. As for the budget deficit, the same thing happens every year. Every year, the U.S. government faces a situation where money runs out, and it is necessary to raise the borrowing limit. The growth of the U.S. national debt is no longer surprising. It is worth noting that about half of the U.S. government's borrowings are from the Fed. Therefore, more than half of the national debt is debt to itself.
In my opinion, all this information indicates that the Fed can continue to adhere to a hawkish policy until it achieves complete victory over inflation. However, the Bank of England and the European Central Bank cannot afford to do the same thing because their economies have not been growing and developing for over a year, and in fact, industrial production is even contracting. The longer interest rates remain at peak levels, the higher the probability of a recession or a prolonged recovery and acceleration of inflation after the hawkish policies of central banks.
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. In the near future, there could be another signal in the form of an unsuccessful attempt to break this level. If it appears, the pair could firmly fall at least to the level of 1.2468, which would already be a significant achievement for the dollar, as the demand for it remains very low.