Currency Market Snapshot For The Week
· INR appreciated by 0.46% against the USD last week and depreciated by 2.33% against the euro.
· USD fell by 4.33% on a week on week basis and is at a level of 98.37.
· The British pound appreciated by 7.15% against the USD
· Euro appreciated by 4.24% against the USD.
Global Bond Market Snapshot For The Week
· US 10-year benchmark bond yields fell by 21 bps last week.
· German 10-year bond yields fell by 14 bps, French 10-year bond yields fell by 16 bps.
· Italy’s 10-year benchmark yield fell by 32 bps to 1.31%.
· US benchmark Junk bond yields fell by 80 bps to 9.82%
INR gained against the USD after touching record low levels of Rs 76.29 on Monday. The gain came after the USD turned volatile against majors, shedding its gains on record money printing by the Fed. RBI announced various measures including a 75-basis point cut in repo rate to support the economy amid the coronavirus-induced crisis. The central bank also reduced the cash reserve ratio (CRR) of all banks by 100 basis points to 3 percent with effect from March 28 for 1 year. Read our analysis on RBI Policy Review March 2020
INR appreciated by 0.46% against the USD last week and depreciated by 2.33% against the euro.
RBI Governor in a statement said that all instruments conventional and unconventional are on the table to support financial stability and revive growth and noted that Rs 3.74 trillion liquidity will be injected into the system through various measures announced on Friday.
In the Statement on Developmental and Regulatory Policies, released along with the bi-monthly monetary policy statement on Friday, the RBI allowed banks, which operate IFSC banking units, to participate in the offshore NDF market, with effect from June 1.
This move opens a channel for the RBI to start intervening in the NDF market through domestic banks. The price discovery will become much better for the INR and more anchored to fundamentals than before.
Market players also believe that it is easier for the central bank to intervene in the NDF market to prevent INR steep fall. An intervention in the offshore market does not entail selling USD physically like in the onshore market, given that an NDF market is settled by the difference in the notional amount between the agreed-upon rate and the prevailing spot rate at the time of settlement. Read our tutorial on offshore NDF.
The central bank has been intervening in the spot and derivative market throughout the month, in order to cushion sharp losses in the INR. In March, the RBI sold USD 17.33 billion, reducing its foreign exchange reserves to USD 469.91 billion that they have been stocking up since late September.
USD ended the week sharply lower against major world currencies as global risk aversion caused by the coronavirus pandemic had eased a bit because of a stimulus package announced by the US. However, the demand for safe-haven assets remains intact given that Japanese yen appreciated by 2.77% against USD.
The U.S. recorded an unprecedented 3.28 million jobless claims for the past week, the highest increase ever. But the hopes that the U.S. House of Representatives will also pass a USD 2.2 trillion stimulus package on Friday buoyed investor hopes and kept USD under pressure throughout the week.
President Donald Trump signed into law on Friday after the US House passed a historic USD 2.2 trillion stimulus package as the US public and the US economy are fighting the devastating spread of Covid-19.
The Euro and British Pound benefitted strongly from the USD weakness last week as they appreciated by 4.24% and 7.15% respectively against USD last week.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yields fell sharply by 21 bps to 0.68% last week as the U.S. filing for unemployment benefits amid the COVID-19 pandemic surged to 3.28 million for the week ending March 21.
Fed Chairman Jerome Powell in a television appearance on Thursday said the U.S. central bank is working hard to support Americans and the U.S. economy. Powell also added that the Fed stood ready to deploy its emergency lending powers to open up the flow of credit in frozen parts of financial markets.
Eurozone bond yields fell last week. German 10-year bond yields fell by 14 bps last week, France 10-year bond yields fell by 16bps and is at negative 0.06%. Italy’s 10-year benchmark yields fell by 32 bps.
US benchmark Junk bond yield fell by 80 bps and is at 9.82%, Euro benchmark Junk bond yields fell by 86 bps to 7.11%.