The issue of Britain's exit from the EU has continued to influence the financial markets. Both parties continue to negotiate with uncertain results, which drags down European stock markets and forces the pound to rise and decline.
So how will this end? In our opinion, it will have a positive effect on the European indices no matter what the result will be, since the certainty in the course of events is important for investors in any case. On the other hand, the British main FTSE 100 index is noted to likely come under pressure and it is hard to say when it will last. In turn, the pound may also locally decline, although it is unlikely to be long-term.
On Wednesday, the US dollar received local support amid prolonged Brexit negotiations and stimulus in the US, where there is also a struggle between representatives of the Republican and Democratic parties. In particular, negotiating parties in Congress cannot settle what they think are important issues, which leads to a delay in the adoption of incentives. We have previously noted that they have long been the subject of political bargaining.
In this situation, it seems that some major players are beginning to panic in the market, which is manifested in active local sales in the US stock market. This led to a local growth in the US dollar, which happened yesterday. In view of the decline of US indices, the ICE dollar index rose sharply above 91.00 points.
On the other hand, ECB's final decision on monetary policy, which will take place in difficult pandemic conditions and Brexit topics, will be considered as one of the important events today.
Markets expect the European regulator to increase the size of the pandemic emergency asset purchase program by 500 billion euros and extend its duration by six months until December 2021. Earlier, measures to support the European economy were expected to end by mid-2021. In addition, the markets wait for the publication of ECB's updated macroeconomic forecast. Some believe that the regulator may resort to reducing the deposit rate by another 10% from the current level of -0.5% to -0.6%. We will find how it will turn out at 12.45 Universal time.
How can markets respond to the ECB's decision to expand incentives and extend their duration? We believe that this will have a positive impact on demand for European stocks, but it may put significant pressure on the single currency exchange rate. And although the market reaction may be blurry due to the Brexit topic, there is still a high probability of such a development of events.
Forecast of the day:
The EUR/USD pair remains under pressure. It is expected to further decline to 1.2000 after the ECB meeting.
Gold can get support if the dollar's strength stops and the market shows interest in buying risky assets again. In this case, gold's price growth above the level of 1844.00 may lead to a further growth to 1872.66.