Pound little changed after Brexit vote, BoJ stays on hold

Summary:

• UK Parliament backed on Thursdasy an extension of the Article 50 at least to June 30
• Bank of Japan stays on hold and downgrades its assessment on economy
• China’s Premier Li Keqiang reiterates the country will not resort to using massive deficit spending in order to support the economy

The week of votes comes to an end

We got an array of votes regarding Brexit in the British Parliament this week as the country has still a deadline to leave the block set on March 29. Nonetheless, after a series of votes taking place on Thursday one could be almost certain that the UK will not leave the European Union at the end of this month. UK lawmakers voted 412-202 in favour of the Article 50 extension. What is going to happen next? The deadline extension must be approved by all EU countries and it could be done at least to June 30 but only on the condition that UK MPs back the May’s agreement next week (March 20) which seems to be almost off the table. If they fail to do so - our base scenario - then the extension is likely to be made even until the end of 2020. Such the long extension is to offer more time the UK to rethink its will. Keep in mind that if the deadline is extended well beyond June 30, it will result in more uncertainty weighing on the British economy and on investment spending in particular. Given the fact that this is the baseline scenario we think that the UK economy could experience a more severe slowdown this year. It is worth noting that UK lawmakers voted 314-312 against the idea to wrestle legislative control from Theresa May, a slim majority signals low confidence to Prime Minister.

Volatility on the pound was much lower compared to the previous days. Technically the GBPUSD is struggling with the major resistance placed around 1.33. This level is supported by the 75WMA. Source: xStation5

BoJ stands pat, comments from China’s PM

The Bank of Japan voted to keep interest rates unchanged at its meeting in March, as expected. The bank also maintained a yield curve control mechanism aimed at keeping the 10Y yield at around 0%. The central bank also kept its pledge to buy JGBs in a flexible manner so its holdings increase at the annual pace of around 80 trillion JPY. On top of that, the BoJ decided to downgrade its assessment on exports and output saying that exports and output were showing some weakness. On the other hand, the bank still believes the Japan economy will continue expanding moderately despite an impact of a slowdown sees overseas. During his press conference Haruhiko Kuroda underlined a need to achieve the 2% inflation target. Note that over the course of recent months there have been many talks regarding that the BoJ could or seven should scrap its price target. The bank seems to be quite distant from this idea, at least for the time being. The yen is treading water this morning amid higher risk appetite reflected in stronger the Aussie (+0.3%) and the kiwi (+0.4%).

Over Asian hours trading we also were offered some remarks from Chinese Prime Minister Li Keqiang who spoke at a press conference at the end of the National People’s Congress. He said that China would not resort to using quantitative easing or massive deficit spending in order to support the economy because such approaches would store up problems in the future. Li stressed that the China’s economy faced new downward pressure but he assured the country would not allow economic growth to fall out of a reasonable range. His comments seem to confirm the current government’s stance with regard to a flood-like stimulus aimed at reviving economic growth. It is undoubtedly a prudent notion and it could be positive in the longer-term. Let us remind that China will cut VAT from April 1 and social security fees from May 1.

The Antipodean currencies are among the best performers this morning. Note that the AUDNZD has slipped to the important support of 1.03 which could stop bears from pushing lower, at least for a while. Source: xStation5

In the other news:

• The US Senate voted to block Trump’s declaration of a national emergency to pay for a wall at the border with Mexico

• Chinese equities rise roughly 0.8% a while before the close