Indian Rupee appreciated by 0.96% against the USD last week as Sensex & Nifty rallied by close to 3% and ten year gsec yield fell 7bps post Brexit. FII’s are expected to be strong buyers of Indian equities and bonds given India’s relative strength in the global economy and given cheap global liquidity.
USD started the week on a high note as Brexit continued to rattle financial markets around the globe, weighing heavily on risk sentiment.
The Brisitsh Pound came under heavy selling pressure after U.K. Finance Minister George Osborne on Monday said that the vote to leave the EU was likely to lead to further volatility in the financial markets but claimed that the economy is as strong as it could be to face the challenges ahead. Pound on weekly basis depreciated by 3.01% against USD and currently is at USD 1.3267 levels.
Rating agencies Standard & Poor’s and Fitch downgraded the credit rating for the U.K. on Monday and warned that further cuts are possible. S&P, the only major rating agency to maintain a AAA rating for the U.K., cut its rating by two notches to AA, warning that Brexit posed a risk to the constitutional and economic integrity of the U.K. while Fitch lowered its rating from AA+ to AA, forecasting an “abrupt slowdown” in growth in the short-term.
But in the later part of the week, market sentiment improved as Global Central Banks indicated that they would take required measures in order to stabilise their respective economies from faltering. Upbeat U.S. economy data released last week further added to the risk appetite of investors, which boosted the demand for the riskier assets.
Japan’s Prime Minister Shinzo Abe on Wednesday pledged to use all available policy tools to keep the wheels of the economy turning. Federal Reserve governor Jerome Powell said on Tuesday that the Brexit vote could also be a drag on the U.S. economy that reinforced market expectations that the Fed will no longer be able to hike rates this year and may even be forced to cut if the domestic economy falters.
U.S. economic data released on Tuesday showed that the third estimate of first quarter U.S. GDP growth was revised to 1.1% from the initial reading of a 0.8% rise and against the expectation for a growth of 1%. However, real consumer spending for the first quarter was revised down to 1.5%, from the initial reading of 1.9% and against the expectation of an upward revision to 2%. USD Index (DXY), which tracks the movement of the USD against six major currencies was higher by 0.21% week on week closing at levels of 95.65.
Conference Board on Tuesday reported that its index of consumer confidence rose to 98.0 in the month of June from a reading of 92.4 in May and against the expectation for the reading to come at 93.3.
U.S. Commerce Department on Wednesday reported that personal spending increased by 0.4% in the month of May, which was in line with the expectation, followed by a rise of 1.1% in April, which was the largest increase in seven years. U.S. Personal income rose by 0.2% against the expectation of a rise of 0.3%, followed by a rise of 0.5% in April.
U.S. National Association of Realtors on Wednesday reported that its pending home sales index fell by 3.7% in the month of May against the expectation for a decline of 1.1%, followed by rise of 3.9% in April.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 25th June increased by 10,000 to 268,000 from the previous week’s total of 258,000 against the expectation of a rise of 9,000 to 267,000.
Institute of Supply Management on Friday reported that its index of manufacturing activity rose to 53.2 in the month of June from May reading of 51.3 and against the expectation for the reading to rise to 51.4.
Brazilian Real sharply appreciated against the USD by 4.28% adding to its best monthly gain since 2003. On monthly basis Real has appreciated by 11% against the USD, the gain was largely attributed to the rally in commodities and on speculation that acting President Michel Temer would revive growth in Latin America’s largest economy.
Asian currencies were largely higher against the USD. Australian Dollar appreciated by 0.43%, New Zealand Dollar appreciated by 0.72%, Japanese Yen depreciated by 0.29% against USD and by 0.45% against Euro. South Korean Won appreciated by 2.97%, Philippines Peso depreciated by 0.19%, Indonesian Rupiah appreciated by 2.1%, Indian Rupee appreciated by 0.96% against USD and by 0.35% against Euro, Chinese Yuan depreciated by 0.57%, Malaysian Ringgit appreciated by 2.36% and Thai Baht appreciated by 0.62%.