Forex Analysis & Reviews: 05.05.2025 - GBP/USD Analysis

InstaForex Loprais Team - Official participant of the Dakar rally

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InstaForex Loprais Team - Official participant of the Dakar rally

05.05.2025 06:09 PM

GBP/USD Analysis – May 5th. What is the Bank of England preparing for us?

The wave structure for the GBP/USD pair has also transformed into an upward, impulsive pattern — "thanks" to Donald Trump. The wave picture is almost identical to that of the EUR/USD pair. Until February 28, we observed the formation of a convincing corrective structure, which raised no concerns. However, demand for the U.S. dollar began to plummet soon after. As a result, an upward five-wave structure was formed. Wave 2 took on a single-wave form and is now complete. Therefore, a strong rise in the pound within wave 3 should be expected — something we have been observing for the past three weeks.

If we consider the fact that news from the UK had no influence on the strong rally of the pound, we can conclude that currency markets are currently governed solely by Donald Trump. If (theoretically) Trump changes his stance on trade policy, the trend could also reverse — this time downward. Therefore, in the coming months (or possibly years), we should closely monitor all actions coming from the White House.

The week began with another dollar decline The GBP/USD pair rose by 65 basis points on Monday, and could appreciate even more by the day's end. The week kicked off with new tariffs from Donald Trump, so the U.S. dollar predictably came under pressure again. This time, the tariffs targeted the film industry, and they are unlikely to be significant in terms of boosting the U.S. budget. However, what matters here is the mere fact of a further escalation in the trade war. This time, Trump chose to openly wage war against his own film producers.

Nonetheless, more important events are scheduled for this week — though for now, Trump's policy remains the market's main focus. The Bank of England will hold a meeting on Thursday, and a 25 basis point rate cut is expected. Additionally, it is anticipated that all nine members of the MPC will vote in favor of a rate cut — something that hasn't happened in quite a while. Based on the BoE outlook, one might have expected the pound to weaken, but at the start of the week, sterling is performing strongly. Let me remind you that the ECB's most recent meeting also ended with monetary policy easing, which had no effect on the euro. The market ignored the fact of the seventh rate cut, so it could easily ignore easing in the UK as well. Based on this, we shouldn't count on a significant decline in the pound even on Thursday.

Today in the U.S., the ISM Services PMI will be released, but if market participants ignored GDP data, manufacturing activity, job openings, and employment reports last week, then there is nothing stopping them from also ignoring today's index. Meanwhile, Trump's new tariffs may continue to drive the dollar into decline throughout the day.

General conclusions

The wave pattern of the GBP/USD pair has shifted. We are now dealing with a bullish, impulsive segment of the trend. Unfortunately, under Donald Trump, the markets may face many more shocks and reversals that do not align with wave patterns or any type of technical analysis. The formation of the upward wave 3 continues with immediate targets at 1.3541 and 1.3714. Naturally, it would be ideal to see a corrective wave 2 in wave 3 before the rally continues. But for that to happen, the dollar must strengthen, which means someone has to start buying it and Trump must stop introducing tariffs.

On the higher wave scale, the wave pattern has shifted as well. We can now expect the formation of a bullish segment of the trend. The nearest targets are 1.2782 and 1.2650.

Core principles of my analysis:

Wave structures should be simple and clear. Complex structures are hard to trade and often shift.
If you're uncertain about what's happening in the market, it's better not to enter.
There is never 100% certainty about the direction of movement. Always use protective Stop Loss orders.
Wave analysis can be combined with other types of analysis and trading strategies.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.