INR ended the week lower against USD owing to sustained demand for the USD from importers and rising global crude oil prices. However, persistent foreign fund inflows and heavy buying in domestic equities supported the INR and capped the losses to some extent. The RBI will conduct its second-long term USD/INR swap auction on the 23rd of April, which will infuse around Rs 350 billion of liquidity into the system. INR depreciated by 0.26% against the USD last week and appreciated by 0.34% against the euro.
USD ended the week higher as the release of upbeat U.S. economic data during later part of the week pointed to strength in the underlying economy. Additionally, the decline in Euro and British Pound helped USD to post gains. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.42% on a week on week basis and is at a level of 97.38. British pound depreciated by 0.48% against USD last week and Euro depreciated by 0.62% against USD.
USD started the week on a lower note, as investors remained cautious after U.S. President Donald Trump renewed his criticism of the Federal Reserve over the weekend. Trump blamed the Fed for slowing growth in the U.S. and falling stock prices due to its tightening monetary policy. He added that “if the Fed had done its job properly, which it has not, the Stock Market would have been up 5,000 to 10,000 additional points, and GDP would have been well over 4% instead of 3%.”
Further, the dovish remarks on monetary policy from Chicago Federal Reserve President Charles Evans added additional pressure on USD. Evans, said that he would be “comfortable” with interest rates staying where they are until the autumn of 2020, something he thought would help ensure that inflation returns to the Fed’s target rate of 2% after slipping in recent months.
U.S. Commerce Department reported that the retail sales gained 1.6% last month against the expectations for a 0.9% rise. The retail sales report showed the biggest headline gain since 2017.
U.S. Department of Labor reported on Thursday that initial jobless claims dropped by 13,000 to 192,000 for the week ended April 14, beating expectations for a rise to 205,000.
British Pound depreciated by 0.62% against USD amid fears that the U.K. Prime Minister Theresa May and opposition leader Jeremy Corbyn are unlikely to reach a consensus on a Brexit deal. Further, on Friday the EU granted a delay to Brexit until October 31 to allow more time for U.K. Prime Minister Theresa May to come up with a deal that lawmakers are willing to support.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yields rose by 2 bps as economic data continued to ease concern on an slowing economy. China GDP growth beat market expectation, China GDP expanded by 6.4% in Q1-2019, against market expectations of a 6.3% increase. GDP reading held steady from the previous quarter, but it’s still the weakest since 2009. GDP growth was aided by 8.5% increase in March industrial production data. Bond yields also got a boost after Federal Reserve said economic activity grew at a slight-to-moderate pace in March and early April. Fed’s Beige Book report based on anecdotal information collected by the 12 regional Fed banks, found that the U.S. economy continues to grow and labor markets remain tight across the country.
Philadelphia Fed President Patrick Harker said if inflation picked up, he could still see the possibility of a rate hike in 2019, and another hike in 2020.
Germany 10-year benchmark bond yields fell by 3 bps, but on Wednesday it touched its highest level in four weeks after economic growth data from China eased concerns about a global growth slowdown. Recent polls by Reuters suggest the chances of Brexit with a deal is greater than Britain leaving E.U without a deal.
Italy 10-year benchmark bond yields rose by 7 bps after Bank of Italy said Italy fiscal deficit would rise to 3.4% of GDP in 2020 unless sales tax is increased or any other fiscal measure taken, after the Bank of Italy statement market is concerned that Italy will be breaching the EU rules of 3% threshold.
Portugal 10-year benchmark bond yields rose by 2 bps, Spain 10-year benchmark bond yields rose by 1 bps.
Emerging economies 10-year benchmark bond yields were mixed last week.
Indonesia 10-year benchmark bond yields fell by 10 bps after early election results indicated current leader Joko Widodo is set to be re-elected, giving him another five years to deliver on a reform agenda and revive economic growth.
South Africa 10-year benchmark bond yields fell by 2 bps after retails sales data beat market expectation, Retail sales rose 1.1% (yoy) in February versus 1.2% growth in January, retail sales beat market expectation for a 0.6% increase but retail sales still remain below the levels needed to lift the economic growth rate.
China 10-year benchmark bond yields rose by 6 bps. Russia 10-year benchmark bond yields rose by 3 bps, Brazil 10-year benchmark bond yields rose by 4 bps.
US benchmark Junk bond yields fell by 5 bps to 6.12%, Euro benchmark Junk bond yields fell by 11 bps to 3.14%.