8 May 2022

USD & UST higher amid central banks changed stance

Fears over rising inflation, stagflation, and more hawkish central banks are making market sentiment weak and boosting the demand for more safe haven assets. The UST yields back over 3%, and the USD traced yields higher.

author dp
Team INRBonds
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     USD traded higher last week as the Fed raised interest rates by 50 basis points as was widely expected and marked the largest rate hike in 22 years.

     The Bank of England raised interest rates by 1% to their highest level since the financial crisis and warned the economy is on course to shrink under pressure from double-digit inflation.

     INR was under pressure amid rate hikes all across the board, RBI too has raised policy repo rate by 40 bps to 4.4% with focus on withdrawal of accommodative stance.

     The Fed also started quantitative tightening in order to trim its balance sheet which grew to $9 trillion through the pandemic.

     US initial jobless claims rose by more than expected last week to 200,000, up from 180,000 the previous week.

     The U.S. has created 428,000 nonfarm jobs in April which is more than expected, bringing the labour force back ever closer to its pre-pandemic level.

     The unemployment rate stayed at 3.6%, against the expectation for a drop to 3.5%, while there were also tentative signs of wage pressures starting to ease.

     Average hourly earnings rose only 0.3% on the month, less than expectation of 0.4%. In annual terms, wages continued to grow at a rate of 5.5%, unchanged from March.

 

 

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