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Pound to Indian Rupee Firmer after PMI data and Monsoon Forecast Downgrade

June 3, 2015 - Written by Tim Boyer

Pound to Indian Rupee Firmer after PMI data and Monsoon Forecast Downgrade



The Pound to Indian Rupee exchange rate inched higher even as UK Service sector PMI data came in below forecast. A similar report out of India also disappointed and the Rupee was also weighed upon by concerns that food prices will soar due to the downgrading of the nation’s monsoon rains forecast.

Sterling came under pressure and weakened against many of its most traded peers after monthly PMI data released by Markit showed that activity in the UK’s dominant services sector slowed by a bigger than forecast level in May. The index dropped from April’s level of 59.5 to 56.5, a figure that was worse than the 59.2 reading forecast.

‘Momentum in the sector stalled in May, with the drop in the headline index the biggest fall for almost four years and likely to cause concern as services remains the UK’s largest driver of economic growth. However, the index still retained its position in positive territory and was higher than its long-term average, as survey respondents reported strong growth in new business for the twenty-ninth month running and continued to expand staffing levels,’ said David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply.

The Indian Rupee was unable to take advantage of the soft UK data as it too was hit by a weak service PMI. Activity in India’s dominant services sector contracted last month as firms’ hiked prices at their fastest pace in a year, a move that sent demand tumbling. The HSBC Services PMI compiled by Markit, dropped from the 52.4 reading seen in April to 49.6 in May. The sharp decline was far worse than the drop to 52.1 expected by economists. As well as price hikes the drop in demand was also blamed on the recent Nepal earthquake which affected large swathes of northern India.

‘Restrained demand accompanied by sweltering heat and the earthquake led to falling new work. Nonetheless, the sector is expected to see a rebound in coming months, as these factors fade away,’ said an economist from Markit.

The weak PMI caused investors to raise their bets that the Reserve Bank of India (RBI) could cut interest rates again despite making the 25 basis point cut on Tuesday.

Also weighing upon sentiment towards the Indian Rupee was the announcement that the Indian government cut this year’s monsoon forecast to 88% of the long-term average. The move was prompted by the El-Nino weather pattern and fears that the country could be hit by drought.
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