22.05.202500:05 Forex Analysis & Reviews: The Bank of England to Slow Down the Pace of Policy Easing

The Bank of England recently cut interest rates for the second time in 2025, justifying its decision with slowing inflation and steady movement toward the target level. But no sooner had the central bank acted than inflation in the UK jumped from 2.6% year-over-year to 3.5%.

What happened next and the conclusions that followed are clear to all market participants. The next round of monetary policy easing is now likely to be a long way off. Despite assurances from many central bank officials that the inflation spike caused by Donald Trump's tariffs is temporary, such claims remain speculative. Haven't we seen numerous instances where central bank forecasts turned out to be wrong?

Moreover, if inflation rose by nearly 1% in just one month, and core inflation now exceeds the target level by almost double, what are the chances that we won't see another increase in consumer prices by the end of May? And how long will it take for inflation to fall back to 2.6% now that the BoE's monetary policy stance is more dovish than before?

That's precisely what BoE Chief Economist Huw Pill addressed on Tuesday. He noted that inflation and wage growth remain high, which means the pace of interest rate cuts should be slowed. "The momentum behind inflation's path toward 2% is weakening. The risks that could prevent inflation from returning to 2% remain," Pill said. Notably, the April CPI data was released the day after his speech.

Pill took a hawkish position at the May MPC meeting, voting against the rate cut—an assessment that has since proven correct. He emphasized that he had called not for a halt to policy easing, but for a pause. "The pace of rate cuts must be very cautious, given global trade disruptions and changes in wage-setting mechanisms in recent years," Pill concluded. The news backdrop continues to support the pound—and only the pound.

Wave structure for EUR/USD:

After analyzing the EUR/USD, I conclude that the instrument continues to build a bullish wave segment. In the near term, wave marking will entirely depend on news related to Trump's decisions. This must always be kept in mind. The third wave of the bullish segment has started, and its targets could stretch up to the 1.25 area. Achieving those levels depends solely on Trump's policies and the U.S. position in global trade. Accordingly, I am considering long positions with targets above 1.1572, corresponding to the 423.6% Fibonacci extension. While a de-escalation in the trade war could reverse the uptrend, there are currently no wave-based signals of such a reversal.

Wave structure for GBP/USD:

The GBP/USD wave pattern has shifted. We are now dealing with a bullish impulse wave segment. Unfortunately, with Trump in office, markets may face numerous shocks and trend reversals that defy wave labeling and any form of technical analysis. The third bullish wave is still forming, with near-term targets at 1.3541 and 1.3714. Therefore, I continue to consider long positions, as the market still shows no interest in reversing the trend.

Core principles of my analysis:

1. Wave structures should be simple and clear. Complex structures are difficult to trade and often lead to changes.
2. If you're not confident about the market, it's better to stay out.
3. There can never be 100% certainty in market direction. Always use Stop-Loss protection.
4. Wave analysis can be combined with other forms of analysis and trading strategies.