Pound Sterling to Indian Rupee weakens on Bank of England Minutes

January 21, 2015 - Written by Frank Davies

STORY LINK Pound Sterling to Indian Rupee weakens on Bank of England Minutes

The Pound Sterling softened against the Indian Rupee and all of its major peers after the Bank of England published the minutes for its January policy meeting. The UK currency weakened as the minutes showed that the Bank of England’s Monetary Policy Committee voted unanimously to leave interest rates unchanged at the record low level of 0.5%. The unanimous vote was the first seen since July last year and prompted investors to push back their expectations for a UK interest rate rise to occur in 2016.

Martin Weale and Ian McCafferty who have called for a rate rise over the past few months changed their position as falling oil prices caused inflation to a joint record low level of 0.5% earlier in the month. They cited that a rate hike now could cause low inflation to become entrenched.

‘The two hawks have rejoined the broader dovish camp within the MPC and that’s going to keep Sterling under pressure. Although there are some improvements in some of the labour market data, the pickup in the wages were disappointing; not really gaining the momentum the market has been looking for,’ said Ian Stannard, head of European foreign exchange at Morgan Stanley.

The minutes also showed that MPC is concerned over the pace of inflation declines.

‘The recent pace of decline in all measures of inflation expectations, in the United Kingdom and internationally, especially as there could be more downside news on inflation to be digested. All members agreed that different measures of inflation expectations across major countries needed to be monitored closely in the months ahead,’ said the MPC minutes.

Further losses for the Pound were restrained however as separate data showed that the number of UK citizens filing for unemployment benefits by 29,700 in December when economists were forecasting a decline of 25,000. The previous month’s figures were also revised to show that the number of claimants fell by 29,600 instead of the previous figure of 26,900.

Unemployment in the UK was also shown to have fallen more than forecast in the three quarters to November. The overall unemployment rate fell from 6% to 5.8% and beat market consensus for a figure of 5.9%.

The Indian Rupee meanwhile made gains on optimism that demand for local assets will rise as falling oil prices improve the country’s economic outlook. The falling prices are forecast to slash India’s trade deficit over the coming months.

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