Currency Market Snapshot For The Week
· INR appreciated by 0.14% against the USD last week and appreciated by 1.24% against the euro.
· USD rose by 0.47% on a week on week basis and is at a level of 99.14.
· British pound appreciated by 0.94% against the USD
· Euro depreciated by 1.10% 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 fell by 1 bps, French 10-year bond yields fell by 1 bps to negative 0.15%.
· Italy’s 10-year benchmark yield fell by 4 bps to 0.90%.
· US benchmark Junk bond yields fell by 13 bps to 5.09%
INR outlook can turn positive despite a weak economy largely on the back of weak oil prices and rising debt flows. Oil prices have collapsed 25% from highs on the back of supply glut and demand worries on coronovirus impact and this will impact trade deficit positively. The Indian Government is looking to issue limit free INR Bonds to FIIs in order for inclusion in global bond indices that may bring in more flows. The government could also tap global bond markets to fund its borrowing. Domestic corporates too may go in for cheap foreign currency funding given the low yields globally on central bank easing. High debt flows are positive for the INR.
INR traded higher against the USD last week amid easing crude oil prices and foreign flows. However, weakness in domestic equities on the back of weak global risk appetite weighed on the INR in the latter part of the week. Moreover, a sharp rise in India’s headline inflation based on the Consumer Price Index to 7.59% in January compared with 7.35% in the previous month also weighed on the INR. INR appreciated by 0.14% against the USD last week and appreciated by 1.24% against the euro.
USD continued to trade higher last week, boosted by its safe-haven status as the coronavirus outbreak continues to spread and also on signs of strength in the U.S. economy. The death toll from the coronavirus continues to mount, claiming over 1,300 victims in mainland China and infecting over 64,000 people.
USD was also boosted after Federal Reserve Chairman Jerome Powell’s testimony did little to support rate-cut hopes. Fed Chairman Jerome Powell in his testimony continued to talk up the strength of the U.S. economy and suggested there was little reason for the Fed to cut rates as the economy remained in a good place, despite the recent coronavirus outbreak.
USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.47% on a week on week basis and is at a level of 99.14.
Euro depreciated sharply to a four-and-a-half-year low against USD last week after a fresh surge in coronavirus cases in China added to concerns about the impact of the outbreak on an already weak eurozone economy. Sentiment toward the euro was also badly hit by the sharpest drop in industrial production in a decade in December, which pointed to the likelihood of a recession in both Germany and Italy, the biggest and third-biggest economies in the eurozone.
However, British Pound appreciated against USD last week on rising hopes that Prime Minister Boris Johnson is eyeing fiscal stimulus after showing U.K. finance minister Sajid Javid the door.
US 10-year benchmark bond yields rose marginally by 1 bps to 1.61% last week after reports suggesting that the spread of COVID-19 may be slowing down. Further, the Fed Chair Powell said in his testimony that he saw interest rates staying on hold but acknowledged the potential risk for the viral outbreak to weigh on the global economy. His remarks came against the market participants’ expectations of easier policy this year.
Eurozone bond yield also fell last week. German 10-year bond yields fell by 1 bps last week, France 10-year bond yields fell by 1 and is at negative 0.15%. Italy 10-year benchmark yields fell by 4 bps.
US benchmark Junk bond yield fell by 13 bps and is at 5.09%, Euro benchmark Junk bond yields fell by 7 bps to 2.51%.