Currency Market Snapshot For The Week
· INR depreciated by 0.20% against the USD last week and depreciated by 0.35% against the euro.
· USD rose by 0.26% on a week on week basis and is at a level of 97.61.
· British pound depreciated by 0.37% against the USD
· Euro depreciated by 0.26% against the USD.
Global Bond Market Snapshot For The Week
· US 10-year benchmark bond yields rose by 1 bps last week.
· German 10-year bond yields rose by 2 bps, French 10-year bond yields WEREflat at 0.04%.
· Italy’s 10-year benchmark yield rose by 5 bps to 1.37%.
· US benchmark Junk bond yields fell by 11 bps to 5.08%
Despite the improvement in global risk appetite, INR traded lower against the USD last week as market participants remained cautious over the state of the economy after India’s headline inflation surged to an over five-year high of 7.35% in December from 5.54% in the previous month. The sharp rise in inflation has weakened the case for the Reserve Bank of India to lower interest rates. INR depreciated by 0.20% against the USD last week and depreciated by 0.35% against the euro.
Moreover, the market participants were also wary of RBI’s USD-buying interventions. Since late September, the central bank has intervened at multiple levels to curtail the INR from rising above Rs 71 to the USD, which has sent out a signal that the central bank is not comfortable with INR rising above the mark.
USD ended the week higher against most of the major world currencies as market participants brushed off softer U.S. inflation data in favor of stronger retail sales, manufacturing activity and pickup in housing starts. U.S. Commerce Department reported that the core retail sales rose 0.7% last month, beating market expectation for a 0.5% rise. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.26% on a week on week basis and is at a level of 97.61.
The USD was largely unchanged during mid of the week following the conclusion of much-awaited U.S.-China phase one trade deal as the impact was already priced in. The U.S. and China completed the signing of the partial trade agreement at the White House, putting the trade war between the two sides on a pause. U.S. Vice President Mike Pence said further phase two talks had already begun as negotiators work to resolve differences.
Under the terms of the first deal, the U.S. reduced tariffs on USD 120 billion in Chinese goods to 7.5% from 15%. In exchange, China agreed to increase purchases from the U.S. by USD 200 billion over the next two years in manufactured goods, agriculture, energy, and services.
Chinese yuan received additional support during the week after the U.S. removed it from its list of currency manipulators, an apparent goodwill gesture ahead of the signing of the two countries’ partial truce in trade relations on Wednesday.
However, the data released shows that China’s economy grew 6.1% through 2019, the lowest rate of growth since 1990. The growth rate is lower than market expectations of 6.2% but within the 6% to 6.5% the central government set in early 2019
British Pound depreciated by 0.37% against USD after U.K. retail sales data unexpectedly fell in December, increasing the chances that the Bank of England may cut a key interest rate this month.
US 10-year benchmark bond yields rose by 1 bps to 1.83% last week after the U.S. Treasury Department announced plans, as had been expected, to issue a 20-year nominal coupon bond in the first half of 2020 to finance a ballooning federal deficit that is nearing 5% of gross domestic product.
However, during the mid-part of the week yields fell as market participants doubted the newly signed U.S.-China trade pact would significantly stoke the U.S. economy this year.
Eurozone bond yields were largely mixed last week. German 10-year bond yields rose by 2 bps last week, France 10-year bond yields remained flat and is at 0.04%. Italy 10-year benchmark yields rose by 5 bps.
US benchmark Junk bond yield fell by 11 bps and is at 5.08%, Euro benchmark Junk bond yields fell by 9 bps to 2.55%.