Summary of the Bank of England Meeting

[Ben Graham]

On Thursday, the Bank of England held its last meeting of the year and made not just an expected decision, but a justified one. It is worth noting that some market participants were skeptical about the fourth round of monetary policy easing in 2026, but all doubts were dispelled after the inflation report was released on Wednesday. It turned out that core inflation slowed from 3.4% year-on-year to 3.2%, while headline inflation fell from 3.6% to 3.2%. Frankly, I did not expect inflation to decline so rapidly. Although it remains well short of the target mark, five consecutive months without acceleration are already a trend.

Thus, by Wednesday morning, it became clear that the BoE would adopt a positive decision for easing policy. However, in practice, for the second consecutive meeting, the decision was made with a narrow one-vote margin. This time, there were only four "hawks" and five "doves." Those voting for a rate cut included Swati Dhingra, Alan Taylor, Andrew Bailey, Sarah Breeden, and Dave Ramsden. It is noteworthy that the decisive vote came from BoE Governor Andrew Bailey, who also cast the deciding vote to maintain the interest rate a month and a half ago.

The Bank of England press release stated that inflation remains elevated but is falling faster than expected. Therefore, it could return to 2% more quickly. The central bank also acknowledged the weakening labor market, but easing monetary policy should positively reflect on its condition. The unemployment rate may rise for a few more months, but will then begin to fall.

During the press conference, Bailey did not make any promises regarding rate cuts in the next year, only stating that BoE decisions will depend on inflation forecasts. If the BoE anticipates further slowing of consumer prices, then the interest rate will also decrease over time.

From all the above, I believe that after this week, the situation has worsened not for the pound but for the dollar. The U.S. labor market remains weak, and the Fed may engage in more significant policy easing in 2026 than previously expected.

Wave Analysis for EUR/USD:

Based on the analysis, I conclude that the EUR/USD pair continues to build an upward trend segment. Donald Trump's policy and the Fed's monetary policy remain significant factors influencing the long-term decline of the American currency. The targets for the current segment of the trend may extend to the 25 figure. The current upward wave set is beginning to develop, and I hope we are witnessing the construction of an impulsive wave structure that is part of the global wave 5. In this scenario, we should expect growth to reach the 25 figure, as I mentioned earlier.

Wave Analysis for GBP/USD:

The wave structure of the GBP/USD pair has changed. We continue to deal with an upward, impulsive trend segment, but its internal wave structure has become more complex. The downward corrective structure a-b-c-d-e in C of 4 appears complete, as does the entire wave 4. If this is accurate, I expect the main trend to resume construction with initial targets around the 38 and 40 figures.

In the short term, I anticipated the formation of wave 3 or c with targets around 1.3280 and 1.3360, corresponding to the 76.4% and 61.8% Fibonacci retracement levels. These targets have been achieved. Wave 3 or c continues to build, and the current wave set is beginning to show impulsive characteristics. Therefore, we can expect continued upward pricing with targets around 1.3580 and 1.3630.

Key Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to trade and often undergo changes.
2. If you have no confidence in market trends, it is better not to enter the market.
3. There can never be 100% certainty regarding the direction of movement. Remember to use protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.

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