INR Gains on Foreign Fund Flows
Currency Market Snapshot For The Week
· INR appreciated by 0.45% against the USD last week and depreciated by 1.28% against the euro.
· USD fell by 1.52% on a week on week basis and is at a level of 98.34.
· The British pound appreciated by 1.40% against the USD
· Euro appreciated by 1.83% against the USD.
Global Bond Market Snapshot For The Week
· US 10-year benchmark bond yields fell by 1 bps last week.
· German 10-year bond yields rose by 5 bps at negative 0.45%, French 10-year bond yields fell by 4 bps.
· Italy’s 10-year benchmark yield fell by 12 bps to 1.48%.
· US benchmark Junk bond yields rose by 47 bps to 7.02%
INR ended the week higher against the USD last week, largely on the anticipation of foreign fund inflows and amid broad weakness in the USD. This month, foreign institutions bought equities worth USD 1.928 billion. However, market players continue to remain cautious over rising tension between the US and China and its impact on the global economy that is already hit by the COVID-19 and lockdown. INR appreciated by 0.45% against the USD last week and depreciated by 1.28% against the euro.
USD ended the week lower despite the U.S.-China tensions nearing a boiling point. However, the sentiment improved during the week as several economies world over moved towards gradually easing curbs. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 1.52% on a week on week basis and is at a level of 98.34.
U.S.-China tensions have been simmering throughout the week, triggered by China’s national security laws for Hong Kong and Macau during the previous week. China’s National People’s Congress approved the enactment of the law in Hong Kong on Thursday.
The global market remained on edge in the latter part of the week largely in anticipation of response by U.S. President, where it was expected that Washington may scrap the phase-one trade agreement with Beijing signed earlier this year or impose fresh tariffs on China, but to everyone’s surprise, his press conference revealed nothing exceptionally damaging. Trump said the U.S. will be terminating its relationship with the World Health Organization, which was widely expected. There was no mention of tariffs of the Phase 1 trade deal.
Hong Kong government on Thursday urged the US against interfering in the internal matter and that revoking its special trade status could be a “double-edged sword”
Euro appreciated against USD last week driven by increased confidence in the global economy but also by EU institutions starting to agree that an accommodative stance is indeed needed, especially in terms of fiscal policy. Further, the optimism over a Euro 750 billion stimulus package by the European Union to revive the economy supported the euro last week.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yield fell by 1 bps last week and is at 0.65%. The bond yields fell sharply on Friday after President Donald Trump railed against China in a news conference, but refrained from revisiting the U.S-China trade deal signed in January, preferring instead to focus on the special relationship with Hong Kong.
In U.S. economic data, personal income in April rose 10.5%, but consumer spending dropped 13.6%, reflecting how households curbed their spending due to lockdown measures and benefited from unemployment insurance payments.
The trade deficit for goods widened by USD 69.7 billion last month. University of Michigan’s consumer sentiment index for May came in at 72.3, marginally higher than 71.8 level seen in April.
Eurozone bond yields were mixed last week. German 10-year bond yields rose by 5 bps and is at negative 0.45%, France 10-year bond yields fell by 4 bps and is at negative 0.07%. Italy’s 10-year benchmark yields fell by 12 bps.
US benchmark Junk bond yield fell by 47 bps and is at 7.02%, Euro benchmark Junk bond yields fell by 53 bps to 5.03%.