GBP to INR Exchange Rate Drops on Defiantly Strong Rupee

April 25, 2017 - Written by Frank Davies

STORY LINK GBP to INR Exchange Rate Drops on Defiantly Strong Rupee

Despite market optimism towards the upcoming UK election, the British Pound has been unable to hold its ground against the Indian Rupee this week. Demand for the Rupee jumped on Monday in an emerging market rally and has remained strong.

GBP/INR opened the week at the level of 82.83. After briefly striking 83.16, its best level since February, GBP/INR fell and at the time of writing trends close to the level of 82.35.

Demand for the Pound has been generally sturdy overall since last week’s surprise announcement that there would be a UK general election held on the 8th of June.

However, this week’s data has been mixed so far and has failed to give the Pound any fresh ground to trade on.

Monday saw the publication of the CBI’s latest factory data. While UK factory exports remained strong due to the low value of the Pound, the Q2 business outlook report came in well below expectations, indicating that optimism had plunged amid growing concerns on the long-term effect of Brexit on Britain’s economy.

Tuesday’s public sector net borrowing data from March had similar implications. Borrowing was much worse than expected despite rounding off the best 2016/17 fiscal year for borrowing since the financial crisis.

Some analysts have argued that public borrowing could also be negatively affected by rising UK inflation in the coming months.

These uncertainties about Britain’s long-term economic outlook made it easier for the Indian Rupee to push GBP/INR lower this week.

When markets opened on Monday, risky emerging market currencies like the Indian Rupee surged in response to the first results of the French Presidential elections.

Hopes that pro-EU Emmanuel Macron would win the second round of the election have lightened ‘Frexit’ concerns notably. Investors are now expecting more economic stability in major economies this year.

This has left emerging markets more optimistic too. The Rupee saw continued favour on Tuesday as Monday’s rally panicked Indian exporters, who sold US Dollars in favour of the Rupee.

Persistent strength in equities markets and Asian markets have kept demand for the Rupee buoyant.

However, the Pound may have the opportunity to recover later in the week.

Mutterings have emerged from the White House that US President Donald Trump is preparing to announce big cuts to corporation tax, which is likely to make markets excited and anxious.

If Trump does indeed detail tax plans this week this may also bolster Federal Reserve rate hike bets. Riskier currencies would be hit by this news and the Pound to Indian Rupee exchange rate would recover.

In terms of data, Friday will see this week’s most influential publications. UK Gross Domestic Product (GDP) projections for Q1 2017 will be published and are expected to improve year-on-year but slow quarter-on-quarter.

If these beat expectations, GBP/INR is even more likely to recover. India’s Friday data includes government budget value, infrastructure output and deposit growth data, but this is unlikely to have a strong influence on GBP/INR movement.

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TAGS: Pound Rupee Forecasts