Synopsis – USD edged higher last week largely helped by rising U.S. Treasury yields even after the Federal Reserve reiterated that it was in no hurry to raise interest rates while predicting strong growth in the world’s largest economy. Reading time 4 minutes.
USD edged higher last week largely helped by rising U.S. Treasury yields even after the Federal Reserve reiterated that it was in no hurry to raise interest rates while predicting strong growth in the world’s largest economy.
Chairman Jerome Powell made it pretty clear, as he handed down the central bank's latest policy decision on Wednesday, that the Fed would be sticking to its easy monetary policies for some time, even while predicting a strong economic recovery and a jump in inflation above target.
The Fed predicted that the economy would grow 6.5% in 2021, the largest annual jump in GDP since 1984 and a hefty increase from the 4.2% growth projected just three months ago. It saw core personal consumption expenditure which is the Fed’s favored measure of inflation at 2.2% by the end of the year.
Federal Reserve additionally said that the temporary change to the supplementary leverage ratio, or SLR, for banks “would expire as scheduled on March 31, 2021. This means that banks will have to hold more capital or sell bonds, driving yields higher. The temporary change was made to provide flexibility for depository institutions to provide credit to households and businesses in light of the COVID-19 event.”
However, Fed Chairman Jerome Powell was quick to remind markets that the recovery is far from complete, and the Fed will continue to provide the economy with the support it needs for as long as it takes.
INR rises despite covid cases surging
INR ended the week higher against the USD despite growing concerns over rapidly rising covid numbers. India experienced its biggest jump in covid cases in three months on Thursday with new daily infections reaching over 35,000. In an effort to contain the outbreak India has extended a curfew across nine districts.
However, Moody’s rating agency has upwardly revised their economic growth forecasts for India. Moody’s now expects the Indian economy to grow by 12% in 2021, following a 7.1% contraction last year.
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