Summary
The logic of very low interest rates is severely self-limiting. If base rates below 1 percent created economic growth then there would be no need for monetary policy. That they do not and cannot is now plainly evident. The justification that they prevented economic catastrophe, even if true, is no argument for their prolongation for nearly a decade in the United States and half that in Europe.
This monetary experiment is ending because, as in Herbert Stein’s famous phrase, "If something cannot go on forever, it will stop”. Recession is the next problem and the ECB, the Fed and the rest of the world’s monetary authorities are in no position to offer their historical counter-cyclical remedies. Global economic growth is weak and ebbing.
The three main proponents of zero rates, the Federal Reserve, the ECB and the Bank of Japan have pointedly declined to augment their programs. If zero rates and quantitative easing worked why stop now? What will the central banks do when the next recession hits? Are there other untried policy tools?
Join us for an examination of the fraught world of modern central bank policy.
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EUR/USD trims gains, hovers around 1.1900 post-US data
EUR/USD trades slightly on the back foot around the 1.1900 region in a context dominated by the resurgence of some buying interest around the US Dollar on turnaround Tuesday. Looking at the US docket, Retail Sales disappointed expectations in December, while the ADP 4-Week Average came in at 6.5K.
GBP/USD comes under pressure near 1.3680
The better tone in the Greenback hurts the risk-linked complex on Tuesday, prompting GBP/USD to set aside two consecutive days of gains and trade slightly on the defensive below the 1.3700 mark. Investors, in the meantime, keep their attention on key UK data due later in the week.
Gold loses some traction, still above $5,000
Gold faces some selling pressure on Tuesday, surrendering part of its recent two-day advance although managing to keep the trade above the $5,000 mark per troy ounce. The daily pullback in the precious metal comes in response to the modest rebound in the US Dollar, while declining US Treasury yields across the curve seem to limit the downside.
XRP holds $1.40 amid ETF inflows and stable derivatives market
Ripple trades under pressure, with immediate support at $1.40 holding at the time of writing on Tuesday. A recovery attempt from last week’s sell-off to $1.12 stalled at $1.54 on Friday, leading to limited price action between the current support and the resistance.
Dollar drops and stocks rally: The week of reckoning for US economic data
Following a sizeable move lower in US technology Stocks last week, we have witnessed a meaningful recovery unfold. The USD Index is in a concerning position; the monthly price continues to hold the south channel support.
Here is what you need to know on Tuesday, February 10:
The USD stays resilient against its rivals early Tuesday after suffering large losses on Monday. The US economic calendar will feature Export Price Index, Import Price Index and Retail Sales data for December. Additionally, several Fed policymakers will be delivering speeches.