03.12.202501:11 Forex Analysis & Reviews: Morgan Stanley No Longer Believes in the Pound

In my view, the British pound retains good long-term growth prospects. I have previously noted in my reviews that the dollar has developed a range of structural problems that are unlikely to allow it to perform as well as it did in the 2010s or the first third of the 2020s. Firstly, Donald Trump does not believe that the U.S. dollar should be strong. The American president supports a weaker dollar, which will boost U.S. exports and help balance trade. Secondly, Trump is an advocate of low interest rates, which will increase investment in the economy and reduce the burden on the federal budget. Thirdly, Jerome Powell is set to resign next year, and a "submissive" director is expected to take his place. Fourthly, central banks around the world are diversifying their risk exposure amid uncertainty about the direction of the American economy and reducing their dollar reserves.

This foundation, in my opinion, does not allow for an optimistic outlook on the dollar. The British economy also shows all possible problems, but the fate of the GBP/USD instrument largely depends on the strength of the U.S. dollar as the world's reserve currency. If the world begins to move away from the dollar, regardless of the issues in the UK, they will take a back seat.

However, Morgan Stanley believes that the British pound has peaked in 2025 and will not appreciate further. Analysts note that there are no positive news stories in the country, and investors have already adequately assessed the UK government's intention to cut spending and raise revenues through tax hikes. As we can see, the pound has not reacted joyfully to this news. Its growth remains very slow and weak, and the wave structure of the GBP/USD instrument may transform into an even more complex corrective structure.

Morgan Stanley experts also noted that a future reduction in the Bank of England's interest rate could even benefit the British pound, as it would make it easier for the government to service its debts, and low borrowing costs would favor investments and consumer spending. I want to point out that I disagree with Morgan Stanley's position, as I consider the factors I mentioned earlier to be more important and significant.

Wave Picture for EUR/USD:

Based on the analysis of EUR/USD, I conclude that the instrument continues to build an upward trend segment. The market has paused over the last few months, but the policies of Donald Trump and the Federal Reserve remain significant factors in the future decline of the U.S. currency. The goals of the current trend segment could reach up to the 25-figure mark. At this moment, the building of an upward wave sequence may continue. I expect that from the current positions, the third wave of this set will continue to develop, which could manifest as either 'c' or '3'. At this point, I remain bullish with targets in the range of 1.1670 to 1.1720.

Wave Picture for GBP/USD:

The wave picture for the GBP/USD instrument has changed. We continue to deal with an upward, impulsive segment of the trend, but its internal wave structure has become complex. The downward corrective structure a-b-c-d-e in 'c' at 4 appears to be quite complete. If this is indeed the case, I expect the main trend segment to resume building with initial targets around the 38 and 40 figures. In the short term, one can expect the formation of wave '3' or 'c' with targets located around the marks of 1.3280 and 1.3360, which correspond to 76.4% and 61.8% Fibonacci levels. These are minimum targets in case the market decides to complicate wave 4 even further.

Key Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to play and often lead to changes.
2. If there is no confidence in what is happening in the market, it is better not to enter.
3. There can be no absolute certainty about market direction. Don't forget to use protective stop-loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.