Disappointing UK Services PMI and BoE Outlook Weighed on GBP INR Exchange Rate

February 3, 2017 - Written by Ben Hughes

STORY LINK Disappointing UK Services PMI and BoE Outlook Weighed on GBP INR Exchange Rate

After the Bank of England (BoE) Inflation Report failed to raise the odds of an imminent return to monetary tightening the Pound Sterling to Indian Rupee (GBP INR) exchange rate was prompted to trend lower.

Weaker Economic Momentum Weighed on GBP

Confidence in the Pound weakened further after the UK Services PMI proved softer than forecast in January, with sector growth slipping from 56.2 to 54.5.

The report also highlighted increasing inflationary pressure, which is likely to feed through into the wider economy in the coming months, with Chris Williamson, Chief Business Economist at IHS Markit, noting:

‘The main area of concern is the extent to which companies’ costs are rising across the economy, with the rate of inflation accelerating to a pace not seen since before the global financial crisis. There is evidence that higher costs are deterring some companies from taking on extra staff, with the January surveys finding employment to have increased at the slowest rate since August. Only construction companies stepped up their hiring at the start of 2017.’

This disappointing showing undermined confidence in the resilience of the UK economy, giving investors little reason to buy into Sterling ahead of the weekend.

Recovering Indian Service Sector Boosted INR Demand

India’s Services PMI, meanwhile, edged higher from 46.8 to 48.7 to show a more limited level of sector contraction in January.

This improvement offered encouragement to the Rupee, in spite of the general mood of risk aversion that had gripped markets in recent days thanks to the increasingly protectionist rhetoric of the US and the Fed’s lack of hawkishness.

A disappointing US labour market report, which highlighted continued weakness in wage growth and further reduced the odds of a near-term Fed rate hike, also put downside pressure on the GBP INR exchange rate on Friday afternoon.

GBP INR Exchange Rate Forecast: Could RBI Cut Interest Rates?

Developments relating to Brexit are likely to dominate the outlook for Sterling in the coming week, with the Article 50 bill continuing to progress through Parliament.

Worries over the severity of the impending break with the EU are expected to keep GBP exchange rates relatively muted, particularly as the BoE looks likely to remain on hold for the foreseeable future and consumer spending is set to be eroded.

The Rupee is expected to see volatile trading ahead of the Reserve Bank of India’s (RBI) first interest rate decision of 2017, as investors anticipate a 25bpt cut in interest rates.

If the Bank delivers this expected monetary loosening the GBP INR exchange rate could make some strong gains, given policymakers’ ongoing struggle to control the high levels of domestic inflation.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Daily Currency Updates Pound Rupee Forecasts