Currency Market Snapshot For The Week
· INR depreciated by 0.03% against the USD last week and depreciated by 0.04% against the euro.
· USD fell by 0.47% on a week on week basis and is at a level of 97.39.
· British pound appreciated by 1.02% against the USD
· Euro appreciated by 0.62% against the USD.
Global Bond Market Snapshot For The Week
· US 10-year benchmark bond yields fell by 18 bps last week.
· German 10-year bond yields fell by 10 bps, French 10-year bond yields fell by 10 bps at negative 0.18%.
· Italy’s 10-year benchmark yield fell by 29 bps to 0.94%.
· US benchmark Junk bond yields rose by 20 bps to 5.38%
INR traded marginally lower against USD ahead of the Union Budget 20-21, as the spread of new coronavirus across several countries dented global risk appetite. Market players globally are concerned if the virus spreads further it will hit tourism and consumer spending, slowing down growth in the world’s second-largest economy. However, a sharp fall in the Brent crude oil prices provided some support to the INR. INR depreciated by 0.03% against the USD last week and depreciated by 0.04% against the euro.
Going forward, INR is likely to remain under pressure as union budget 20-21 highlights the challenges to fiscal consolidation from slower real and nominal growth, which may continue for longer than the government forecasts. The modest narrowing of the deficit to 3.5% in the fiscal year 2020-21 from 3.8% in the fiscal year 2019-20, sustained weaker growth and tax cuts would make gross revenue targets difficult to achieve. The government also has limited room to reduce expenditures without further weakening growth. While the government remains committed to medium-term fiscal consolidation, any material strengthening in India’s public finances will likely be limited in the near term, and the debt burden will remain sensitive to changes in nominal GDP growth.
USD ended the week lower amid release of mixed U.S. economic data and due to a rise in demand for safe-haven assets like the yen, amid fears of a global pandemic as Chinese health authorities showed little signs that they have a grip on the outbreak. However, USD remained supported during mid of the week after the Federal Reserve said it will hold its benchmark rates steady as expected. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.47% on a week on week basis and is at a level of 97.39.
The new coronavirus has spread to nearly 10,000 people worldwide and the death toll in China rose to over 240, raising concerns over China’s ability to contain the outbreak, which could severely curtail global growth.
The central bank’s Federal Open Market Committee on Thursday said that it will hold the rates between 1.5% and 1.75%. It was the second straight meeting the Fed made no changes to rates following three rate cuts in 2019.
During his post-meeting news conference, Fed Chair Jerome Powell said “Fed wanted to underscore our commitment to 2% not being a ceiling, to inflation running symmetrically around 2% and we’re not satisfied with inflation running below 2%.”
Euro and British Pound traded higher against USD last week after Bank England’s decision to keep rates steady, with outgoing BoE Governor Mark Carney saying a cut would have risked inflation rising above the central bank’s target. Euro came under pressure on Friday amid signs of weakness in the eurozone economy after a preliminary reading of fourth-quarter GDP fell short of forecasts.
German retail sales slumped 3.3% in December, a much weaker number than expected. The French economy unexpectedly contracted in the final quarter of last year, with GDP shrinking 0.1%, the first time it has contracted since Emmanuel Macron took over as President. France has been hit by a wave of strikes amid protests against Macron’s controversial proposed pension reforms.
US 10-year benchmark bond yields fell sharply by 18 bps to 1.51% last week after concerns about the economic impact of China’s coronavirus epidemic resurfaced, driving investors back into government paper at the expense of stocks.
The World Health Organization declared the coronavirus epidemic a global health emergency on Thursday and initially calmed some investor nerves by praising Beijing’s efforts to contain the outbreak and opposing travel or trade restrictions with China to limit its impact.
At the Federal Reserve’s post-meeting press conference, Chairman Jerome Powell’s comments that the U.S. central bank was monitoring the virus’s outbreak helped accelerate buying of Treasurys late in the session.
Eurozone bond yield also fell sharply last week. German 10-year bond yields fell by 10 bps last week, France 10-year bond yields fell by 10 and is at negative 0.18%. Italy’s 10-year benchmark yields fell by 29 bps.
US benchmark Junk bond yield rose by 20 bps and is at 5.38%, Euro benchmark Junk bond yields rose by 14 bps to 2.75%.