Fed Policy Outlook and Wave Analysis for EUR/USD and GBP/USD

The recent FOMC meeting highlighted a complex internal dynamic within the Federal Reserve. While Jerome Powell acknowledged the possibility of interest rate reductions in the coming months, such a scenario appears increasingly unlikely given current economic conditions. This cautious outlook follows pressure from several Fed governors to remove language regarding potential monetary easing from the official communique, suggesting a more hawkish underlying sentiment.

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Jerome Powell has indicated his intention to remain as a central figure within the FOMC for an indefinite period. By resisting political pressure to step down, Powell aims to preserve the institution's independence and maintain the current voting balance. His continued presence likely limits the immediate addition of more dovish members to the committee, which could have significant implications for the long-term trajectory of U.S. monetary policy.

Inflation remains heavily dependent on geopolitical developments, specifically the situation in the Strait of Hormuz. If the blockade is resolved, inflation may begin to gravitate toward the 2% target, potentially allowing the Fed to reconsider its rate-cutting cycle. However, a prolonged conflict through 2026 would likely sustain upward price pressure, making any shift toward easing difficult to justify even under new leadership.

Despite the Federal Reserve's relatively hawkish stance, the U.S. dollar has not seen a sustained increase in demand. Market participants appear to be looking beyond the current leadership toward future policy shifts. If geopolitical tensions in the Middle East begin to de-escalate, the demand for the U.S. currency is expected to gradually decrease, potentially altering the current wave patterns of major currency pairs.

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Technical analysis of EUR/USD suggests the instrument is currently positioned within an upward trend section, though it remains in a corrective structure. This corrective phase may become more complex and extended if the geopolitical background improves. Conversely, a failure to find support at current levels could trigger the formation of a new downward wave set, depending on broader market sentiment regarding international negotiations.

The wave pattern for GBP/USD has formed a clear three-wave upward structure that may have reached completion. The baseline scenario now anticipates the development of a downward wave, with a potential target near the 1.3400 level. While an extension into a five-wave upward trend is possible, such a move would require a significant subsiding of Middle Eastern conflicts to fuel demand for riskier assets.

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