Currency Market Snapshot For The Week
· INR appreciated by 0.05% against the USD last week and depreciated by 2.16% against the euro.
· USD fell by 1.43% on a week on week basis and is at a level of 96.94.
· The British pound appreciated by 2.63% against the USD
· Euro appreciated by 1.72% against the USD.
Global Bond Market Snapshot For The Week
· US 10-year benchmark bond yields rose by 24 bps last week.
· German 10-year bond yields rose by 16 bps at negative 0.28%, French 10-year bond yields rose by 9 bps.
· Italy’s 10-year benchmark yield fell by 6 bps to 1.42%.
· US benchmark Junk bond yields fell by 70 bps to 6.32%
Global currencies traded sharply higher on Friday following shockingly strong U.S. labor market numbers. Instead of losing another 7.5 million jobs in the month of May as expected, U.S. companies added 2.5 million jobs. It reinforces the view that a recovery is underway and suggests that the U.S. government’s stimulus program effectively stabilized the economy. The unemployment rate dropped to 13.3% from 14.7% and against the expectation of a 19% rise. The only bad news was wage growth as earnings fell 1%.
INR ended the week marginally higher against USD despite the ease in the global risk appetite, amid speculation that central bank curtailed sharp rise in the INR beyond Rs 75.30 a USD this week through its dollar-buying interventions in significant quantum. INR appreciated by 0.05% against the USD last week and depreciated by 2.16% against the euro.
According to the latest data, the RBI had added nearly USD 12 billion to its foreign currency reserves since the week ended May 1, taking reserves to a record high of USD 493.48 billion as of May 29.
However, simmering tensions between the US and China continue to weigh on the global currency market. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 1.43% on a week on week basis and is at a level of 96.94.
On Thursday, US Secretary of State Mike Pompeo urged global stock exchanges to tighten rules for Chinese companies. Furthermore, President Donald Trump said that the US would commence the process of eliminating special treatment for Hong Kong after China imposed a new security law in Hong Kong.
Euro appreciated sharply higher by 1.72% against USD last week after the European Central Bank’s bold stimulus measures stoked hopes the eurozone could emerge from the Covid-19 recession quicker than many expect. The European Central Bank said on Thursday that it will increase its pandemic bond-buying program by 600 billion euro (USD 681 billion) in an effort to cushion the economic blow from the coronavirus pandemic. The expansion in monetary stimulus comes as the EU proposed a euro 750 billion coronavirus fiscal rescue plan.
ECB President Christine Lagarde said on Thursday that Euro area activity is “expected to rebound in the third quarter as the containment measures are eased further, supported by favorable financing conditions, an expansionary fiscal stance, and a resumption in global activity.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yields rose by 24 bps last week and is at 0.89%. The bond yields rose sharply on Friday after the monthly U.S. employment report showed an unexpected surge in job gains, strengthening market expectations that the economy’s recovery is on track.
A widely watched gauge of the spread between short-term and longer-term Treasury yields widened sharply on Friday, underlining the growing optimism in the economic recovery among bond buyers. The spread between the 2-year bond yield which is at 0.212% and the 10-year bond yield which is at, 0.901% expanded by 9 basis points to around 72 basis points, its widest levels since February 2018.
Eurozone bond yields were mixed last week. German 10-year bond yields rose by 16 bps and is at negative 0.28%, France 10-year bond yields rose by 9 bps and is at 0.01%. Italy’s 10-year benchmark yields fell by 6 bps.
US benchmark Junk bond yield fell by 70 bps and is at 6.32%, Euro benchmark Junk bond yields fell by 48 bps to 4.55%.