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Indian Rupee to Pound Sterling at Weakest Level since August 2014

May 13, 2015 - Written by Frank Davies

Indian Rupee to Pound Sterling at Weakest Level since August 2014



The Indian Rupee weakened to its lowest level since August last year as disappointing domestic data out of India continued to weigh and as UK data beat forecasts. The Rupee slid in the previous session as year-on-year industrial production tumbled from the 4.87% recorded in February to 2.1% in March.

Year-on-year manufacturing production also missed expectations by tumbling from 5.2% to 2.2%. Also weighing on the Indian Rupee was inflation data, which showed that retail prices rose by 4.87% year-on-year, the slowest pace of growth seen since December. Economists had expected that the poor figure could spur the Indian central bank to cut interest rates at next month’s policy meeting.

‘With inflation coming lower and Indian industrial production output also a little low, chances of a rate cut in June have increased,’ said a trader based in Mumbai. The Indian central banks inflation target is 6%.

The Rupee fell further in today’s session on signs that the Reserve Bank of India wants the Rupee to weaken. Economists had expected more intervention in the markets to slow the currency’s slide to a 20-month low against the US Dollar. In reality, the bank only spent $2 to $3 billion on intervention last week. Traders believe the RBI will step in more strongly, if the rupee starts falling towards 65, given that could have an inflationary impact by making imports such as oil costlier.

The Rupee weakened against the Pound after the UK currency was buoyed by better than forecast data. According to the London based Office for National Statistics (ONS) the UK’s unemployment rate fell to 5.5%, the lowest level seen since the summer of 2008. The number of Brits out of work fell by 35,000 in the first quarter to 1.83 million. The total number of people in work rose to 31.1 million. The number of people claiming Jobseeker’s Allowance fell by 12,600 in April to 764,000. The UK’s overall employment rate now stands at 73.5%, the highest since records began back in 1971.

Also supporting the Pound was a separate report, which showed that average earnings including bonuses increased by 1.9%, a figure that beat economist expectations for an increase of 1.7%. Excluding bonuses, employer earnings increased by 2.2%.
Looking ahead the Indian Rupee could make gains later in the week if Wholesale Price Index reports come in positively. Also of interest will be balance of trade data.

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