March 17, 2017 - Written by John Cameron
STORY LINK GBP INR Exchange Rate Extends Gains Despite Scottish Independence Worries
Following the surprisingly split Bank of England (BoE) vote on interest rates the Pound Sterling to Indian Rupee (GBP INR) exchange rate remained on a stronger footing.
BoE Policy Meeting Split Boosted GBP Demand
Confidence in the Pound was strongly boosted by the fact that known hawk Kristin Forbes had voted in favour of a 25bpt interest rate hike at Thursday’s BoE policy meeting.
However, the general tone of the meeting minutes remained on the more dovish side, pointing towards the Bank maintaining its current neutral policy bias for longer.
As researchers at Rabobank noted:
‘Consumer surveys are also indicating a nasty souring of sentiment, most likely on the back of rising prices. The Bank has warned that there is only so much inflation that it will look through and has indicated that monetary policy can respond in either direction to changes to the economic outlook. However, with inflation threatening to progressively erode real incomes and pressure demand, we see little risk of the BoE hiking rates.’
Markets were also encouraged by Theresa May’s refusal to allow a second Scottish independence referendum before Brexit negotiations are concluded, temporarily easing fears of a break-up of the UK in spite of rising political tensions.
Muted Risk Appetite Limited INR Strength
Despite the positive boost from recent state election victories for Prime Minister Narendra Modi’s ruling Bharatiya Janata Party (BJP) the Rupee has been unable to regain particular ground against the Pound.
Although the Federal Reserve proved to be a little less hawkish than investors had anticipated at its March policy meeting risk appetite nevertheless remained a little muted.
With the US Dollar remaining strong in spite of the Fed’s more cautious view on further interest rate hikes the appeal of the Rupee was limited.
As a result, with nothing in the way of fresh domestic data, the GBP INR exchange rate continued to trend higher during Friday’s European session.
GBP INR Exchange Rate Forecast: UK Inflation in Focus
If India’s fourth quarter current account report shows a widening of the trade deficit this could put renewed pressure on the Rupee, undermining confidence in the outlook of the domestic economy.
Even so, the appeal of the Pound could fade further in the coming week as political developments in the UK are likely to remain in focus.
Volatility is likely to be in store for the GBP INR exchange rate in response to February’s UK consumer price index data.
Forecasts point towards another increase in inflationary pressure on both the month and the year, which could exacerbate worried over the increasing signs of a fresh squeeze on wages and consumer spending.
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TAGS: Pound Rupee Forecasts Pound Sterling Forecasts