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GBP INR Exchange Rate Volatility Forecast on UK Retail Sales Data

April 20, 2017 - Written by Ben Hughes

Markets have continued to bet on the prospect of the Conservatives returning to power with a larger majority in the June general election, keeping the Pound Indian Rupee (GBP INR) exchange rate on a stronger footing.
There are hopes that Theresa May would have the freedom to push for a softer Brexit if the influence of Eurosceptic backbenchers is reduced.

This speculation has seen the Pound trending higher across the board over the course of the week, even though the Conservatives seem unlikely to dial back on hard Brexit rhetoric in the campaign.

However, the outcome of the election is still far from being a done deal, even if the odds of Labour making any significant gains are rather low.

If political uncertainty looks set to persist for the foreseeable future this could limit the upside potential of the GBP INR exchange rate, which also looks vulnerable to profit taking at this juncture.

Confidence in the Indian Rupee was boosted on Thursday, with some of the recent mood of risk aversion fading.

Investors were encouraged by the falling odds of a June interest rate hike from the Federal Reserve, with just a 40% chance now attached to the possibility.

With the US Dollar back on a weaker footing the higher-yielding Indian Rupee was able to make some gains, even as talk of OPEC extending its oil production cuts weighed on the outlook of the Indian economy and its high levels of oil imports.

As Friday’s Indian foreign reserves figure is unlikely to provoke particular volatility for the Rupee the GBP INR exchange rate could hold onto its gains ahead of the weekend.

However, the Pound could come under pressure if March’s UK retail sales data points towards a weakening in consumer spending.

Sales are forecast to have contracted -0.5% on the month, indicating that the income squeeze has already started to deter consumers and eat into household finances.

With inflation set to rise further over the course of the year and wage growth stagnant any early signs of weakness would bode ill for the outlook of the domestic economy.

On the other hand, if spending is found to have held up even as inflation started to bite investors could be encouraged to take a more optimistic view.

Comments from Bank of England (BoE) policymaker Michael Saunders could also provoke Sterling movement, with markets still looking for guidance with regards to the central bank’s outlook on monetary policy.

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