Interbank Market News Scan: Will today’s U.S. jobs situation report provide traders with insights on the economy’s growth?

Interbank, People’s Bank of China.  Today, the People’s Bank of China (PBOC) announced open market operations in the form of reverse repo operations totaling RMB 100 billion at a rate of 2.20% with a maturity of seven days. 

A reverse repurchase agreement or repo is the purchase of securities with the agreement to sell them back at a higher price at a specific future date.  For the party selling the security and agreeing to repurchase the security at some time in the future (in this case seven days), it is a repurchase agreement.  For the party buying the securities, it is a reverse repurchase agreement.

What foreign exchange traders may find interesting is the difference between the PBOC’s pledged repo rate of 2.1238% and the 2.20% rate on the RRP.  Inflation is the buzz word from central banks around the world.  Should China be considered an exception? And while China’s economy is still experiencing positive growth, rate of growth has been decreasing.

The PBOC currently reports an exchange rate of USD-CNY=6.3980.

Traders should contact their brokers for more information on how the PBOC’s open market operations via reverse repurchase agreements may move foreign exchange rates.  

Interbank, Federal Reserve, Jobs Report.  Today, the Board of Governors of the Federal Reserve System (Federal Reserve) will be keeping a keen eye on the U.S. Department of Labor’s Jobs Situation Report. The Federal Reserve has made clear that it will maintain its fed funds policy target rate at 0 to .25% until it sees labor market conditions consistent with maximum employment.

In theory, maximum or full employment is a condition where an economy is making optimal use of its skilled and unskilled labor.  There is no magic unemployment rate number that indicates a voila moment on maximum employment.  

The unemployment rate, which currently stands at 4.8%, tends to get a lot of play in the business media.  Traders should bear in mind that the unemployment rate is a lagging indicator with not much bearing on the future performance of the U.S. economy.  While a lagging indicator itself, data describing trends in productivity and the costs of acquiring employees along with changes in producer and consumer price indices are more important especially in a post-pandemic era where changes in the structure of the labor force have accelerated.

Traders should contact their brokers for more information on how foreign exchange rates may react to today’s Jobs Situation Report.

Alton Drew

5.11.2021

 Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.