US Stimulus Package Uncertainty Drives USD Higher

Currency Market Snapshot for The Week

• INR depreciated by 0.21% against the USD last week and appreciated by 1.48% against the euro.
• USD rose by 1.85% on a week on week basis and is at a level of 94.64.
• The British pound depreciated by 1.32% against the USD
• Euro depreciated by 1.77% against the USD.

INR traded lower against the USD last week as the market sentiment weakens amid concerns that a surge in COVID-19 cases may hamper economic recovery. However, INR garnered support from likely foreign fund inflows for initial public offerings of three Indian companies that were open for subscription for foreign investors. INR depreciated by 0.21% against the USD last week and appreciated by 1.48% against the euro.

USD rose to fresh two-month highs on Friday, underpinned by safe-haven demand amid weaker-than-expected economic data and ongoing worries about the economic fallout from a lack of further federal stimulus. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 1.85% and is at a level of 94.64.

Fears of a second wave of coronavirus in Europe and the UK prompted authorities to reimpose certain curbs. This came as hopes of fiscal stimulus by the US government waned, with the Democrats and the Republicans hitting a stalemate over details of the package.

However, during the week several US Federal Reserve officials pointed out the need for more fiscal stimulus from the government to support the ailing economy. They also reiterate that the central bank will keep the interest rates near zero levels until inflation stabilized at 2%.

US Federal Reserve Chair Jerome Powell said that the economic recovery will be quicker if the US government and the Fed, both took supportive steps.

Additionally, the economic data released in the Eurozone and the US pointed to a lag in recovery, which also weighed on investors' risk appetite. Data showed that unemployment insurance claims in the US rose by 4,000 to 870,000 in the week ended Saturday. U.S. Commerce Department reported durable goods orders increased just 0.4% in August from the prior month, against the expectation of 1.5%.

On Friday, the global risk sentiment improved slightly after report suggest that US Treasury Secretary Steve Mnuchin and US House of Representatives Speaker Nancy Pelosi have agreed to resume talks, with Pelosi asking the Democrats to assemble a new COVID-19 relief Bill of roughly USD 2.4 trillion. The new stimulus plan proposed by the Democrats could be voted on next week.

Global Bond Market Snapshot for The Week

• US 10-year benchmark bond yield fell by 4 bps to 0.66% last week.
• German 10-year bond yield fell by 4 bps and is at negative 0.53%.
• Italy's 10-year benchmark yield fell by 7 bps to 0.89%.
• US benchmark Junk bond yields rose by 49 bps and is at 5.99%

US 10-year benchmark bond yield fell by 4 bps last week and is at 0.66% amid concerns over spiking of COVID-19 cases in the U.S. and Europe which continued to rise, with a lack of another round of stimulus out of Washington adding to worries about the economic outlook.

Additionally, the likeliness of a contested U.S. presidential election between President Donald Trump and challenger former Vice President Joe Biden have also contributed to investor jitters, helping underpin demand for assets perceived as havens.

Eurozone bond yields fell last week. German 10-year bond yields fell by 4 bps to negative 0.53%, France 10-year bond yields fell by 3 bps to negative 0.25%. Italy's 10-year bond yield fell by 7 bps to a level of 0.89%.

US benchmark Junk bond yield rose by 49 bps to 5.99%, Euro benchmark Junk bond yields rose by 35 bps to 4.06%.