Currency Market Snapshot For The Week
· INR depreciated by 0.35% against the USD last week and depreciated by 0.18% against the euro.
· USD rose by 0.39% on a week on week basis and is at a level of 97.32.
· The British pound depreciated by 1.01% against the USD
· Euro depreciated by 0.32% against the USD.
Global Bond Market Snapshot For The Week
· US 10-year benchmark bond yields fell by 18 bps last week.
· German 10-year bond yields fell by 16 bps and is at negative 0.45%, French 10-year bond yield fell by 6 bps.
· Italy’s 10-year benchmark yield fell by 1 bps to 1.41%.
· US benchmark Junk bond yields fell by 46 bps to 6.78%
Fed’s gloomy forecast on US economy will weigh on the USD in the longer term as rates stay at 0% and the central banks prints endless amount of currency.
INR traded lower against USD last week as the concerns over India’s weak growth and strained government finances continued to put pressure on the INR. On Wednesday, S&P Global Ratings affirmed its “BBB-” rating on India and left the outlook unchanged at “stable”, but said it expects a meaningful fall in the fiscal deficit in 2021-22 (Apr-Mar). INR depreciated by 0.35% against the USD last week and depreciated by 0.18% against the euro.
The Reserve Bank of India’s foreign exchange reserves crossed record USD 500-billion mark in the week ended Jun 5. According to International Monetary Fund data, India currently has the fifth-highest foreign exchange reserves behind China, Japan, Switzerland, and Russia. Between Apr 1 and May 29, the central bank added nearly USD 16 billion to foreign exchange reserves.
USD traded higher against major world currencies last week as the global risk sentiment weakens drastically after US Federal Reserve’s painted a gloomy outlook for the world’s largest economy and also the concerns over the second wave of COVID-19 infections weighed on investors risk appetite, as countries are gradually resuming business activity. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.39% on a week on week basis and is at a level of 97.32.
The US Federal Reserve in its monetary policy statement said that the coronavirus crisis will weigh “heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term”. The Fed projected US GDP to contract 6.5% in 2020 and unemployment to be near 9.3% by the end of this year.
Fed Chair Jerome Powell added that keeping in mind the fall in US consumer prices for the third consecutive month in May–the longest stretch of decline ever–he is “not even thinking about raising rates.”.
The Fed left interest rates unchanged at 0.00-0.25% and according to a forecast released by the central bank, interest rates are likely to remain near zero until 2022.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yields fell by 18 bps last week and is at 0.71% after the Federal Reserve indicated that it would keep the federal funds rate steady at a range of 0% to 0.25% through at least 2021. The Fed pledged to continue supporting the US economy for “as long as it takes” and said it will maintain the pace of asset purchase–around USD 80 billion of US Treasury notes and USD 40 billion agency-backed mortgage security loans per month.
Eurozone bond yields were down last week. German 10-year bond yields fell by 16 bps and is at negative 0.45%, France 10-year bond yields fell by 6 bps and is at 0.05%. Italy’s 10-year benchmark yields fell by 1 bps.
US benchmark Junk bond yield rose by 46 bps and is at 6.78%, Euro benchmark Junk bond yields rose by 7 bps to 4.62%.