INR, on Friday, weakened to hit two weeks low against the USD tracking losses in Asian currencies market on weak China data and on fragile risk sentiment on trade and geopolitical concerns. The market sentiments were also week after the attacks on tankers in Gulf of Oman escalated US-Iran tensions and raised concerns over supply flows. INR depreciated by 0.47% against the USD last week and depreciated by 0.40% against the euro.
So far this year, the INR has fallen 0.04% against the USD. During the period, foreign investors bought USD 11.26 billion in Indian equities and USD 1.35 billion in the debt market.
Trade deficit has widened by USD 0.74 billion on year on year basis to settled at USD 15.36 billion in May which is likely to put pressure on INR. On the other hand, Forex Reserves are near at lifetime highs, in current RBI data released on June 7, Forex Reserves had increased by USD 1.87 billion to USD 423.5 billion,
USD traded mixed last week but ended the week higher after the release of upbeat U.S. retail sales data indicating a rebound in the economy. The report followed weak inflation reports and rising jobless claims this week, which, coupled with trade tensions, have led traders to think the Federal Reserve could cut interest rates later this year. Additionally, the fall in Euro and British Pound supported USD during the week. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 1.07% on a week on week basis and is at a level of 97.57.
USD started the week on a higher note on Monday amid indications that global trade tensions are easing but gains were held in check by expectations for lower U.S. interest rates. Market sentiment was boosted after the U.S. and Mexico struck a migration deal late last week to avert a tariff war. U.S. President Donald Trump had threatened to impose 5% import tariffs on all Mexican goods starting on Monday if Mexico did not commit to do more to tighten its borders.
USD came under sharp pressure on Wednesday after the Federal Reserve came in for another barrage of criticism from President Donald Trump for allegedly keeping interest rates too high. Trump tweeted that the euro and other currencies are undervalued against the USD, “putting the U.S. at a big disadvantage. “The Fed Interest rate way too high, added to ridiculous quantitative tightening! They don’t have a clue!”
Further, the data released on Wednesday showed U.S. consumer prices barely rose in May, pointing to a moderate inflation that together with a slowing economy increased pressure on the Federal Reserve to lower interest rates this year.
Weekly Global Bond Market Analysis
US 10-year benchmark bond yields fell by 4 bps, as market expectations for interest-rate cuts gained ground ahead of the Federal Reserve’s meeting next week. Fed watch tools also indicate 86.6% probability for an interest rate cut in July meeting. Bond yields fell following reports that oil tankers were attacked by an unknown group in the Gulf of Oman, forcing an evacuation of the ships. The geopolitical uncertainty increased the demand for safe haven assets. On the economic data front, Consumer price inflation rose 0.1% in May, in line with market estimates, but the core measure, which excludes items like food and energy prices, increased by 0.1%, slightly below the 0.2% forecast.
Germany 10-year benchmark bond yield closed at historic lows. Germany sold bunds at the lowest yields on record. The auction marks the first time 10-year Bunds have been at such a low yield, according to official data that stretch back to 2005. Germany bond yields collapsed after ECB decision to hold rates at historic lows until the mid-2020. The ongoing concern on US-China trade wars & uncertainty due to Brexit is also the reason why bund yields are trading at historic lows.
Italy 10-year benchmark bond yields rose by 3 bps after Italy debt office announced a surprise 20-year bond sale, looking to take advantage of hefty demand for eurozone debt. As ECB is easing monetary policy, demand for European debt has increased, but the demand for Italian debt will be under the cloud as Eurozone will decide about the sanction on Italy. (The European Commission last week put Italy on notice about its huge debt)
Portugal 10-year benchmark bond yields rose by 1 bps, Spain 10-year benchmark bond yields fell by 5 bps.
UK 10-year benchmark bond yields fell by 3 bps, Recently 3 members of BoE monetary policy committee warned that going forward there can be couples of rate hikes despite the global slowdown, Deputy Governor Ben Broadbent said BoE assessment on the economy warranted higher interest rate. BoE monetary policy meeting will be held next week.
Emerging economies 10-year benchmark bond yields were mixed last week.
Indonesia 10-year benchmark bond yields fell by 33 bps, Governor Perry Warjiyo said the monetary authority will calibrate its policy to support financial stability and boost economic growth. The six rate hikes last year helped to shore up the currency and lure foreign investors back into the nation’s stocks and bonds. Warjiyo has warned that slower global growth, weaker commodity prices and rising financial market uncertainties could hurt Indonesia’s economy. Growth will probably come in below the midpoint of the central bank’s forecast range of 5-5.4% this year
South Africa 10-year benchmark bond yields rose by 5 bps after Rating agency Moody’s said that a first-quarter economic contraction in South Africa was credit negative. It also cut its forecast for the country’s 2019 economic growth to 1.0% from 1.3%. Moody’s is the only credit firm to rate South Africa at investment grade
Brazil 10-year benchmark bond yields fell by 8 bps, China 10-year benchmark bond yields rose by 1 bps., Australia 10-year benchmark bond yields fell by 8 bps
US benchmark Junk bond yields fell by 24 bps to 6.15%, Euro benchmark Junk bond yields fell by 18 bps to 3.49%.