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Pound Sterling to Indian Rupee Exchange Rate Softer in Data Light Session

June 25, 2014 - Written by David Woodsmith

With the majority of the days data releases coming from the USA the GBP/INR Exchange Rate was experiencing little movement.

Earlier in the session the Rupee was trading lower against several major peers as concerns over rising oil prices weighed. With the conflict in Iraq showing signs of escalation concerns over the world’s oil supply increased and in turn sent oil prices climbing yet again.

As Syrian warplanes bombed ISIL targets inside Iraq and US Special Forces arrived in the country fears are mounting that the conflict could spread beyond Iraq’s borders. Already Iran has pledged to back the Iraqi government and Israel launched attacks of its own on the Syrian border.

The fight for Iraq seems to still be in ISIL’s favour as reports said that the militants had captured more towns and had launched an assault on one of the nation’s largest air bases. So far government forces have been unable to regain lost territory. The crisis has caused western diplomats to raise concerns that the nation could collapse or dissolve.

"We have used the word crisis about Iraq before, but this is the real thing," said a western diplomat, who also expressed doubts about the capability of Iraq's leaders to resolve the sectarian disputes that have laid the groundwork for the ISIS insurgency. Iraq's political leaders now mostly realize the problems," the diplomat said. "But has it translated into action yet? It has not."

As India imports most of its oil needs a rise in the price of the commodity will have a negative impact upon the Indian economy. The rise in prices is likely to negatively impact upon India’s current account deficit and inflation rate. Worries over Iraq are also weighing upon the Pound.

Economists are not expecting the Rupee to make any substantial movements until July 10th when the federal budget will be announced.

The Rupee could come under pressure over the coming days as concerns over a poor monsoon raised the possibility of inadequate farming output. So far this month monsoon rains have been 38% lower than the 50-year average.

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“Looking outside the window I see no sign of rain. Oil is a concern but the monsoon is key for India’s prospects and the situation there is looking very bad,” said an economist based in Mumbai in an interview with Bloomberg.
“The budget is the next key event. The market will await the fiscal deficit numbers but it may not have a big impact on the Rupee as such. I expect the Rupee to be in a range with a bias towards Dollar buying to the month end demand and the Iraq issue,” said Pramod Patil, assistant vice president of forex and fixed income at United Overseas Bank.

The Pound meanwhile was continuing to be weighed upon by yesterday’s dovish comments by Bank of England governor Mark Carney. As he addressed the parliament’s Treasury Select Committee Carney said that interest rises depends upon data releases and singled out wage growth as one are for improvement.

The last UK wage growth data came in weak and as such the comments disappointed investors who had been hoping for a more hawkish stance from the BoE man. He also added that any rate rises will be limited and gradual.

Tomorrow will be another US data intensive day. Further disappointing data out of the world’s largest economy could offer some support to the Rupee. BoE Governor Mark Carney is due to give another speech tomorrow, this time to deliver his report on the UK’s financial stability.

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