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The wave pattern for GBP/USD continues to indicate the formation of a bullish impulsive wave structure. The wave picture is almost identical to that of EUR/USD, as the only main driver remains the U.S. dollar. Medium-term demand for the dollar is declining across the market, resulting in many instruments showing nearly identical dynamics. At present, wave 4 is assumed to be complete. If this is indeed the case, the upward movement will continue within the framework of impulsive wave 5. Wave 4 could take a five-wave form, but this scenario is less likely.
It should be remembered that much in the currency market now depends on Donald Trump's policies—not only trade policy. The U.S. occasionally produces favorable economic reports, yet the market remains focused on persistent uncertainty, contradictory decisions and statements from Trump, and the hostile, protectionist stance of the White House. Global tensions are rising and, as noted, the dollar remains the main factor at the center of market developments, which is why it is under consistent pressure.
No obstacles for the pound. On Thursday, GBP/USD fell by several dozen points, but the British pound could well resume its rise today. The UK released fairly solid reports, adding to optimism. However, optimism is not essential for the pound at this point, as its growth is almost entirely a reflection of the U.S. dollar's decline. Demand for the pound has increased over the past two weeks, which suggests that the current move is merely a downward corrective wave. The correction could still take the shape of a five-wave a-b-c-d-e pattern, but the likelihood is low.
This morning, data showed that UK GDP in the second quarter grew by 0.3% (versus the expected 0.1%), while industrial production rose by 0.7% (versus the expected 0.2%). This demonstrates that the UK economy can deliver positive results over a given period. However, annual growth remains weak at just 1.2%, so quarterly and monthly data should not be overestimated.
In the second half of the day, the U.S. released producer price index data, showing a 0.9% increase in July—the highest in the past three years. It appears the market has finally reached the point where inflation is starting to respond to Trump's tariffs. The PPI indicates that producers have begun raising prices, likely due to higher costs of imported components, metals, and other raw materials. Consequently, a sharp increase in inflation can be expected in the near term, something Jerome Powell has repeatedly warned about.
How this will affect the Federal Reserve's monetary policy remains unclear. A strong rise in inflation will certainly reduce dovish market expectations, and upcoming labor market and unemployment reports will help refine forecasts for the September meeting. However, the Fed faces a challenging situation in which it will likely have to prioritize between the labor market and inflation.
The GBP/USD wave structure remains unchanged. The market is in a bullish impulsive trend segment. Under Donald Trump, markets may see many more shocks and reversals that could significantly affect the wave structure, but for now, the main scenario remains intact. The targets for the upward trend are now near 1.4017. I currently assume that the formation of corrective wave 4 has been completed. Therefore, I recommend long positions targeting 1.4017.
Key principles of my analysis:
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