The public believed that low and negative interest rates are great. However, a huge number of economists, and recently even sociologists, disagree with this. And apparently, the majority did not notice what Isabel Schnabel, who is on the Executive Board of the European Central Bank, said yesterday. Her presentation was very interesting, which is an excerpt from a quite serious study of the results of a policy of negative interest rates (details of this report can be found on ECB's website). The main point of this report is that, despite a number of positive effects that a policy of negative interest rates gives, in the long term, negative consequences prevail. To put it simply, you shouldn't indulge in negative interest rates as it hurts the economy as a whole. And as soon as Isabelle Schnabel talked about this simple idea, the dollar immediately lost all its positivity and began to weaken again. After all, this means that the European Central Bank is seriously thinking about changing the direction of its monetary policy and may start raising interest rates soon. In this context, the pound looks much more interesting, which actively grew way better than the single European currency. The reason is that the Bank of England announced that it would consider the possibility of further reducing interest rates, which are already at zero level. That is, the Bank of England may switch to a policy of negative interest rates. So, if the European Central Bank not only says that it intends to raise interest rates, but even supports this with research showing the ineffectiveness of the policy of negative interest rates, the Bank of England will certainly abandon such ideas. The pound grew largely in advance, due to the revaluation of the Bank of England's plans. But nothing interesting happened with the single European currency, since the ECB has long hinted at the possibility of starting a gradual tightening of monetary policy. Another justification for this step is just provided.
In addition, Europe brought us some good news. In particular, we are talking about the labor market in France, where the number of applications for unemployment benefits fell by 172.2 thousand. This is more than twice than the forecasted decline of 70.7 thousand. Of course, the surge in unemployment in March and April is still not settled, but the trend is clearly encouraging.
Unemployment claims (France):
The investors are happy with the US statistics, as orders for durable goods, which were supposed to grow by 3.9%, soared by 11.2%. This means that the industrial production and retail sales will increase soon. In other words, consumer activity is steadily growing or more precisely, being restored. But the most important thing is that all these are pro-inflationary factors, so we are expecting a rise in consumer prices. And if it had not been for Isabelle Schnabel's speech, the dollar would clearly have managed to strengthen its position. However, the policy of the European Central Bank has much more weight than any orders there.
Durable Goods Orders (United States):
There is no important macroeconomic data and expected statements in Europe today. Therefore, we will all pay attention to the United States. The second estimate of GDP for the second quarter is being published there today. It is worth noting that the recent publication of similar data for Europe was slightly better than the first estimate. So, in the United States, such an event is also likely. If the first estimate of GDP accelerated in the economic decline rate from -5.0% to -32.9%, which is the largest economic downturn in the history of the United States, then the second estimate may also show that the rate of decline has accelerated to -32.5%. There is a small difference, since the decline in the end is not as big as expected. Moreover, investors have already incorporated the first estimate into the dollar value, so the dollar should be reevaluated. However, the dollar's upside potential could be limited by unemployment claims. And although the number of initial applications may fall from 1,106 thousand to 1,068 thousand, the number of repeated requests should grow from 14,844 thousand to 14,900 thousand. At the same time, the total balance should have risen by 18 thousand. This suggests that the recovery of the labor market has stopped and unemployment remains at a very high level.
Repetitive Unemployment Insurance Claims (United States):
The EUR/USD pair follows the course of the 1.1780/1.1850 range, consistently working out the specified boundaries. We can assume that a narrow amplitude oscillation has enough time to get it done, which will focus a large number of speculators and lead to a local surge in activity. The best trading tactic is breaking down one or another border of the 1.1780/1.1850 range, working for a surge in activity.
The GBP/USD pair has shown an upward interest since this trading week started. It directed the quote towards the local highs on August 19 and 21. Thus, we can assume that if the upward mood is kept and the price consolidates above 1.3225, the quote will continue to the 1.3250/1.3265 area. Otherwise, the existing price slowdown within 1.3190/1.3222 may become the area for a future correction.
