The INR ended the week marginally higher against USD last week as softer crude oil prices and gains in domestic equities bolstered currency market sentiments. Further, the weaker USD last week provided support to INR amid renewed concerns over ongoing US-China trade tiff which market participants believe, is dragging the global economy towards a major weakness. INR appreciated by 0.02% against the USD last week and appreciated by 0.60% against the euro.
The latest signs of a slowdown in China after data pointing to a dip in fourth quarter growth boosted the demand for the safe haven yen last week. Official data showed that the China’s economy grew by an annualized 6.4% in the three months to December, down from 6.5% in the third quarter. It was the slowest rate of growth since the global financial crisis and marked the third consecutive quarter of slowing growth.
USD ended the week lower last week amid concerns over global growth, the U.S. government shutdown and the ongoing U.S.-China trade war. USD received support during mid of the week due to sharp fall in Euro after European Central Bank President Mario Draghi warned that euro area growth was waning. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.56% on a week on week basis and is at a level of 95.79.
USD started the week on a flat note on Monday after the International Monetary Fund (IMF) cut its 2019 and 2020 global growth forecasts. The IMF now projects a 3.5% growth rate worldwide for 2019 and 3.6% for 2020. These are 0.2% and 0.1% points below its last forecasts in October. The IMF has further cited that China-U.S. trade disputes, a renewed tightening of financial conditions, risks of a “no deal” Brexit and a deeper-than-anticipated slowdown in China, as the reasons for the downgrade.
USD rose sharply on Thursday amid sharp drop in the Euro after ECB President Mario Draghi warned that “the risks surrounding the euro area growth outlook have moved to the downside on account of persistent uncertainties.” The dovish remarks came after the European Central Bank left its benchmark rate unchanged, with Draghi adding that rates could be kept lower for longer should economic frailties in the region continue.
However, USD came under sharp pressure on Friday, as the pound hit 3-month high against the USD on growing confidence that the U.K. can avoid crashing out of the European Union. Labour party, the main opposition party in the U.K., raised investor hopes that a no-deal Brexit would be averted after it signalled that it would back a cross-party proposal seeking to extend the deadline by which the UK is required to leave the EU, should the government fail to win support for a withdrawal deal. British pound appreciated by 2.52% against USD last week.
USD suffered additional loss on Friday on expectations that the Federal Reserve will turn more dovish at its coming week’s meeting. Further, amarket report which suggests that the Fed is closer than expected to end its balance sheet unwind also weighed on USD.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yields fell by 3 bps to 2.75%, bond yields rose from its low of 2.71% after President Donald Trump announced that he had reached a deal with congressional lawmakers to reopen the federal government. Bond yields also reacted higher after upbeat company results offset worries about slowing economic growth.
The Federal Reserve will meet next week and is expected to leave rates on hold. The Wall Street Journal reported that policy makers are moving near a decision whether to bring the unwinding of its balance sheet to an early close.
Japan 10-year benchmark bond yields fell by 1 bps. Bank of Japan kept its key interest rate unchanged and cut its inflation forecasts. However, BoJ maintained its massive stimulus program, with Governor Haruhiko Kuroda warning of growing risks to the economy from trade protectionism and faltering global demand.
Eurozone bond yields fell to multiyear lows, after the European Central Bank President Mario Draghi said economic risks had moved to the downside and that near-term growth momentum is likely to be weaker than anticipated.
The European Central Bank concluded its first policy meeting of the year and said it would keep interest rates unchanged. The central bank had ended its program of monthly asset purchases in December, but it pledged to keep intact the size of its crisis-era balance sheet by reinvesting the proceeds from maturing bonds.
Italy 10-year benchmark bond yields fell by 5 bps, Greece 10-year benchmark bond yields fell by 10 bps, Portugal 10-year benchmark bond yields rose by 5 bps, Spain 10-year benchmark bond yields fell by 10 bps.
Emerging economies 10-year benchmark bond yields were mixed last week.
China 10-year benchmark bond yields rose by 4 bps after China poor economic growth, Chinese economy grew by 6.6% in 2018, its slowest pace in 28 years. Also, the International Monetary Fund cut its global growth rates for 2019 to 3.5% from 3.7%, amid concerns the second largest economy in the world was struggling to prevent growth from sliding further even after implementing several rounds of stimulus.
Australia 10-year benchmark bond yields fell by 9 bps, after Australia unemployment rate fell unexpectedly in December and now sits at the lowest level since June 2011. As per Australian Bureau of Statistics, unemployment fell to 5.0% after seasonal adjustments, coming in below the 5.1% level expected by the market.
Russia 10-year benchmark bond yields rose by 3 bps. South Africa 10-year benchmark bond yields fell by 18 bps, Brazil 10-year benchmark bond yields fell by 9 bps, Indonesia 10-year benchmark bond yields rose by 2 bps.