Currency Market Snapshot For The Week
· INR depreciated by 0.12% against the USD last week and depreciated by 0.89% against the euro.
· USD fell by 1.09% on a week on week basis and is at a level of 99.48.
· The British pound appreciated by 1.52% against the USD
· Euro appreciated by 1.26% against the USD.
Global Bond Market Snapshot For The Week
· US 10-year benchmark bond yields rose by 13 bps last week.
· German 10-year bond yields rose by 10 bps, French 10-year bond yields rose by 2 bps.
· Italy’s 10-year benchmark yield rose by 4 bps to 1.59%.
· US benchmark Junk bond yields fell by 118 bps to 8.42%
The US Fed buying junk bonds in its latest USD 2.3 trillion program can unleash a flight of USD, as investors worry about the money thrown into the system. Any pullback of US economy growth forecasts on the back of widespread recession, low oil prices and heavy government debt would lead to a sharp fall in value of USD. INR could benefit if India comes out of the Covid-19 issue in a better state than the rest of the world. Read our note on US Fed is playing God, investors should be frightened.
INR ended the week lower against USD and touched its record low level of Rs 76.34 on Wednesday amid deepening concern over the extent of the economic fallout due to COVID-19 which has amplified flight of foreign funds. INR depreciated by 0.12% against the USD last week and depreciated by 0.89% against the euro
However, RBI is doing a reasonable job of containing the volatility and holding it at levels of Rs 76, as any spike in volatility could lead to an acceleration in capital market outflows. Panic would also set in among those investors who have unhedged positions and among exporters who have sold USD forward and are now looking to cancel these contracts as their shipments are getting delayed/canceled. Therefore, it is likely the RBI will continue to intervene to keep the volatility in check.
Further, the market participants are revising their economic growth forecasts downwards for various countries and the investors are becoming more anxious and pulling out funds from emerging counties.
USD traded lower against major world currencies last week as the appetite for riskier assets improved mildly in the mid part of the week largely on the back of the expectation that the spread of the coronavirus pandemic was nearing its peak, and also that governments would provide more stimulus measures to boost the economic growth. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 1.09% on a week on week basis and is at a level of 99.48.
However, the sentiment weakens in the latter part of the week after International Monetary Fund forecast the world economy suffering its worst recession since the Great Depression this year, with emerging markets and low-income nations in Africa, Latin America, and Asia at particularly high risk.
The IMF’s baseline outlook is for a partial recovery in the global economy in 2021 if the pandemic fades in the second half of this year to allow a gradual lifting of containment measures, Managing Director Kristalina Georgieva stressed that uncertainty about the coronavirus duration means things may wind up being even worse.
Weekly Global Bond Market Analysis
U.S. 10-year benchmark bond yields rose by 13 bps to 0.73% last week after the Federal Reserve released the minutes from its mid-March meeting, showing that senior Fed officials were divided on how a U.S. recovery from the pandemic might take shape. The minutes also showed the worst-case scenario projected by staff economists was for the recovery to be delayed until next year.
The Federal Reserve on Thursday announces that it would unleash around USD 2.3 trillion of credit through its emergency lending programs, which helped buoy investor sentiments. The program will now support an even broader array of assets including sub-investment-grade corporate bonds and highly rated collateralized loan obligations
Fed Chairman Jerome Powell said that the economy could snap back once the coronavirus pandemic eases. But he emphasized that fiscal stimulus would have a bigger part to play than central bank lending to support a growth bounce back.
Eurozone bond yields were largely up last week. German 10-year bond yields rose by 10 bps last week, France 10-year bond yields rose by 2 bps and is at 0.10%. Italy’s 10-year benchmark yields rose by 4 bps.