Currency Market Snapshot For The Week
· INR depreciated by 0.06% against the USD last week and appreciated by 0.65% against the euro.
· USD rose by 1.33% on a week on week basis and is at a level of 98.684.
· British pound depreciated by 2.14% against the USD
· Euro depreciated by 1.25% against the USD.
Global Bond Market Snapshot For The Week
· US 10-year benchmark bond yields rose by 8 bps last week.
· German 10-year bond yields rose by 6 bps, French 10-year bond yields rose by 5 bps to negative 0.14%.
· Italy’s 10-year benchmark yield rose by 1 bps to 0.94%.
· US benchmark Junk bond yields fell by 17 bps to 5.22%
INR traded marginally lower against the USD last week after the Budget 2020 disappointed market participants. Finance Minister Nirmala Sitharaman in her budget 2020 speech pegged the country’s fiscal deficit at 3.8% for the current fiscal, compared to the earlier target of 3.3% of GDP.INR depreciated by 0.06% against the USD last week and appreciated by 0.65% against the euro. INR posted a modest gain on Thursday after Reserve Bank of India signaled to continue with the accommodative stance in its sixth bi-monthly policy. However, INR turned lower again on Friday mainly on the back of weakening risk appetite amid strength in USD and re-emerging fears over China virus. The outlook for INR is weak given a weak economy with GDP growth at 5% and with growing fears on the Virus impact.
Reserve Bank of India (RBI)s Monetary Policy Committee (MPC) on Thursday refrained from slashing the repo rate and maintained an accommodative stance. However, it announced certain measures aimed at ensuring better monetary policy transmission. Sentiment also improved after RBI estimated a 6% GDP growth rate for 2020-21 while projecting a 6.2% growth rate for Q3 December 2020. It revised the CPI inflation projection for Q4 March 2020 to 6.5% and 5.4-5% in the first six months of 2020-21 and 3.2% in the third quarter of 2020-21.
USD last week traded higher against major world currencies amid higher risk aversion among market participants as they are worried about the global impact of coronavirus. The relative stability of the Japanese Yen indicates that while investors are worried about the global impact of coronavirus, they believe the U.S. economy will fare better than others. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 1.33% on a week on week basis and is at a level of 98.684.
Last month, the U.S. economy created 225,000 jobs against the expectation of 160,000. The unemployment rate, however, unexpectedly ticked up to 3.6%, and average hourly earnings slowed to a pace of 0.2% from 0.3%, missing expectations of 0.3%. The annual pace of wage growth was 3.1%.
The increase in job gains last month indicates that the economy remains in a “good place”, but the softer wage print and upside surprise in joblessness “will only reinforce concerns about inflation staying below the target.
Euro and British Pound both extended their losses against USD. German trade and industrial production numbers were very weak while the British Pound fell victim to a rising USD.
US 10-year benchmark bond yields rose sharply by 8 bps to 1.59% last week as the January employment report showed larger gains than expected. The sharp rise in U.S. treasury yields came on Tuesday as market participants were encouraged by the efforts of China’s economic officials to cushion the economic and financial blow of the coronavirus. The People’s Bank of China deployed another 500 billion yuan (USD 71.5 billion) into the banking system to support liquidity. This follows an injection in the previous session of more than USD 170 billion.
Eurozone bond yields also rose last week. German 10-year bond yields rose by 6 bps last week, France 10-year bond yields rose by 5bps and is at negative 0.14%. Italy 10-year benchmark yields rose by 1 bps.
US benchmark Junk bond yield fell by 16 bps and is at 5.22%, Euro benchmark Junk bond yields fell by 17 bps to 2.58%.