The market this week is focusing on the release of May’s US non-farm payrolls data, which will affect the movement of the financial market and central banks’ decisions on quantitative easing measures.
With the spread of Covid-19, central banks have implemented bold quantitative easing measures to purchase a large number of government bonds and mortgage-backed securities to supply funds to the market and improve the economy.
This is preceded by lowering interest rates to almost zero – or a rate that cannot be lowered anymore – to make it easier to raise funds, expand production equipment and bolster business performance.
If the employment statistics have not improved this time, it is likely that central banks will stick to their current measures – to keep purchasing the same amount of government bonds and mortgage-backed securities.
However, if the economic indicators or the employment statistics are positive on Friday – if more people have found jobs – the central bank will employ the exit strategy of tapering (an economic term that refers to the reduction of purchases of financial assets through quantitative easing policies).
As tapering will be carried out faster, it will trigger the appreciation of the US dollar, which is the key currency, and create a scenario in which inversely correlated products such as gold, other currencies and commodities will be sold.
Conversely, interest rates will rise and the dollar will be bought.
So let’s pay attention to the release of the non-farm payrolls data this Friday and see if it will lead to tapering.
At the same time investors need to be careful, in particular, regarding a decline in the euro, the yen and the price of gold.