The INR ended the week marginally higher against the USD despite falling during the later part of the week amid rising crude prices and heavy foreign fund outflows. The INR got a boost at the start of the week after data released on Tuesday showed that retail consumer inflation in January rose 2.05%, its slowest pace since June 2017, increasing the possibility of a RBI rate cut in April. INR marginally appreciated by 0.06% against the USD last week and appreciated by 0.58% against the euro.
The easing of trade tensions between US and China provided additional support to the emerging currencies including INR. US President Donald Trump on Tuesday said he would consider extending the deadline for a trade deal with China beyond 1 March, “if we’re close to a deal”. The comments came as the third round of trade negotiations between world’s two largest economies are set to resume in Beijing to avert more than doubling tariffs on USD 200 billion in Chinese imports to the US.
USD ended the week higher last week against major world currencies, the gain was largely driven by progression in US-China trade talks and its positive impact on risk appetite. However, the problem for the USD is that economy is showing some signs of weakness, as the two most important measures for the Federal reserve, CPI and Retail sales, missed expectations. 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 97.09.
USD started the week on a higher note on Monday as hopes for U.S.-China trade meetings boosted investor sentiment. Further, the fall in euro amid heightened political insatiability and fall in British pound amid Brexit pressures also helped USD to gain higher.
USD came under pressure slightly on Tuesday, as demand for safe-haven assets weakened on signs that the U.S. federal government won’t shut down again this year. President Donald Trump said on Tuesday he’s not happy with a tentative deal in Congress that would allocate barely a quarter of what he had sought for a wall on the U.S.’s southern border, it was only part of an overall USD 23 billion that has now been allocated to border security.
The euro depreciated by 0.35% against the USD last week, as economic growth concerns in the eurozone continued to weigh on sentiments after the European Union cut its growth outlook on Italy and Germany last week. Further, European Central Bank board member, Benoit Coeure, said that the central bank was warming up to the idea of issuing new longer-term refinancing operations amid slowing euro area economic growth.
British pound fell for a third consecutive week on Friday, paring this year’s advance, highlighting the growing pessimism about Britain’s exit from the EU. Theresa May suffered another Parliamentary defeat on Thursday and has just two weeks to reach a compromise with the bloc and secure domestic backing before British lawmakers could wrest control of the process from her in a vote proposed for Feb. 27.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yields rose by 3 bps to 2.66%. President Donald Trump said that trade talks were going very well as both sides look to reach an agreement before early March. Treasury yields touched 2.70% after inflation data showed modest price pressures. US core consumer prices, excluding volatile items such as food and energy, increased 2.2% from a year earlier in January 2019, the same pace as in December and slightly beating market expectations of 2.1%. 10 year UST yield fell from its 2.70% mark after weak retail sales data. Retail sales fell 1.2% in December, marking the biggest monthly drop since September 2009, according to the Commerce Department. The department also said retail sales fell 0.9% in December, excluding gasoline station sales.
Germany 10-year benchmark bond yields rose by 2 bps after data showed Germany economy escaped recession. Germany economy did not grow in the fourth quarter following a 0.2% contraction in the July-September period, which was the first time GDP shrank since 2015.
UK 10-year benchmark bond yields rose by 2 bps after economic data suggested that Q4 performance dragged annual GDP down to 1.4% in 2018, the lowest growth since 2012. UK gross domestic product (GDP) expanded by 0.2% in Q4 2018.
Spain 10-year benchmark bond yields rose by 1 bps. The chances of Prime Minister Pedro Sanchez calling a snap election have risen after Spain parliament blocked his ruling Socialist party’s 2019 budget, as the government was unable to find support to get its 2019 budget through parliament.
Eurozone peripheral bond yields fell sharply after Germany escape recession
Greece 10-year benchmark bond yields fell by 20 bps, Portugal 10-year benchmark bond yields fell by 12 bps, Italy 10-year benchmark bond yields fell by 18 bps.
Emerging economies 10-year benchmark bond yields were mixed last week.
China 10-year benchmark bond yields fell by 6 bps, data suggest a slowdown in factory prices , which has added to concerns about the return of deflation and increased the chance of more easing from the central bank
Australia 10-year benchmark bond yields rose by 4 bps. South Africa 10-year benchmark bond yields rose by 24 bps, Brazil 10-year benchmark bond yields fell by 41 bps, Indonesia 10-year benchmark bond yields rose by 17 bps.
US benchmark Junk bond yields fell by 11 bps to 6.69%, Euro benchmark Junk bond yields fell by 7 bps to 4.00%