Brexit postponed: markets grow, risks decrease

Producer prices in the US rose by 0.1% in February against the forecast of 0.2%. On an annualized basis, the growth also turned out to be slightly weaker and amounted to 2.5% instead of the predicted 2.6%. Some slowdown in the growth of inflation does not worry investors, who are in high consumer demand, since wage growth rates remain high. Yield of 5-year bonds TIPS resumed growth, however, there was no response to the slowdown in inflation in February.

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EURUSD

By Wednesday evening, the euro rose after it became clear that the UK is not ready to leave the EU without an agreement. Speaking at the European Parliament, EU chief negotiator Michel Barnier noted that the risks of parting Britain with the EU without an agreement have increased, even if they don't want it on the islands, because the exit can happen unintentionally. Nevertheless, according to Barnier, Europe is ready for such a scenario.

Investors, on the other hand, seems to be not quite sure of such readiness.The demand for bonds is growing as there are more and more rumors about the ECB's readiness to follow the Japanese scenario. For 5 years, the Central Bank of Japan pursued a policy of stimulation, which did not give any positive result. Japan's budget deficit is also closed by issuing bonds, which are disciplined by banks to buy out without hope of ever getting their money back. The target of 2% for inflation has never been achieved, and, as it turned out, the number of economists is waiting for a new wave of quantitative easing, i.e. growth of the monetary base.

Moreover, the volume of industrial production in the eurozone rose by 1.4% in January compared to December. The result slightly exceeded forecasts, on an annualized basis, the decline slowed down from -4.2% to -1.1%. At the same time, it should be noted that the Eurozone locomotive Germany is still unable to get out of the negative zone, in which the decline was 3.4% in January.

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Other than the previously announced TLTRO, the introduction by the ECB of any additional incentive measures can break bullish scenarios. his is the second danger, along with Brexit, which may prevent the euro from continuing recovery. . On Thursday, EURUSD is likely to remain in the sideways range. Since there are no reasons for the update of 1.1338, support will be in the zone of 1.1285 / 95.

GBPUSD

The Ministry of Finance of Great Britain expects GDP to grow by 1.2% in 2019 instead of the previously projected 1.6%. Additionally, both GDP growth and the likely reduction in the budget deficit can only show forecast figures if the UK exits from the EU within the framework of an approved agreement.

Probably, Hammond's words served as the factor that allowed the British parliamentarians to reject the option of leaving the EU without an agreement by a margin of only 4 votes yesterday.The pound immediately updated the highs since July 2018, as it became clear that the British authorities intend to seek a civilized solution to withdraw from the EU. Scenarios in which Brexit will take place without any agreement, will lead to the strongest economic blow to London. The main of which is the probability of losing the status as the financial capital of the world.

Today will be the third and final vote, which with the most probability to approve an attempt to extend the effect of Article 50 of the Lisbon Treaty with a corresponding appeal to the EU. In any case, Europe is also not interested in breaking ties without an agreement and finding a compromise. Thus, it will be on the agenda once again, which will add points to the pound.

Also today, the pound's mood is bullish. After the vote, we can expect an update of the maximum of 1.3381 and an attempt to substantiate the direction of movement to 1.37 in the medium term, but most likely, it is going to the side range. For the pound, the main threat is leaving, but economic realities remain unchanged, and the macroeconomic growth driver is still absent.

The material has been provided by InstaForex Company - www.instaforex.com