GBP to INR Exchange Rate Slips as UK Wage Growth Disappoints

June 14, 2017 - Written by David Woodsmith

STORY LINK GBP to INR Exchange Rate Slips as UK Wage Growth Disappoints

This week, concerning UK economic data has prevented the British Pound to Indian Rupee exchange rate from recovering much from its worst levels in over a month.

After shedding a rupee last week, GBP/INR trended near a low of 81.47 on Tuesday. The pair has since recovered from this low but remains near the week’s opening levels of 81.88.

The Pound’s performance saw a brief improvement on Tuesday as investors bought the currency up from its recent lows and reacted to the day’s high UK inflation figures.

Investors had been hoping that higher-than-expected inflation could pressure the Bank of England (BoE) into tightening UK monetary policy faster than expected.

However, the rising inflation also reminded traders of concerns about Britain’s economic outlook – concerns that worsened on Wednesday when the latest wage growth stats came in.

On Wednesday, Britain’s April employment report was published. The unemployment rate remained at 4.6% as expected, but wage growth came in well below expectations.

Wage growth excluding bonuses was predicted to improve from 1.8% to 2% in April, but instead slowed to 1.7%. This meant that UK inflation was far outstripping wage growth, indicating that citizens were facing a worse ‘pay squeeze’ than expected.

As consumer prices rise and wage growth slows, citizens have weaker spending power. Britain’s economy is largely consumer-facing, meaning a drop in activity from consumers will lead to slower economic growth.

Concerns about this as well as ongoing political certainty in Britain since the election has kept the Pound highly pressured.

Demand for the Indian Rupee, meanwhile, has been relatively sturdy over the last week, with India’s healthy fundamentals making its emerging market currency less risky than others.

This week’s Indian data has been mixed and GBP/INR likely avoided further Wednesday losses due to India’s latest inflation data. May’s year-on-year inflation print was expected to slip from 2.99% to 2.6% but dropped to 2.18% on when it published on Monday.

The WPI inflation print was similar on Wednesday, dropping to 2.18% despite being projected to come in at 3.11%.

As for the GBP/INR outlook, the pair is most likely to be influenced by big developments in Britain’s political situation. Brexit negotiations are expected to begin in the coming week or so. If the UK government’s Brexit stance softens at all, the Pound could strengthen.

Thursday will see the Bank of England (BoE) hold its anticipated June monetary policy decision. If the bank indicates that it will leave policy loose despite inflation nearing 3%, the Pound is likely to drop.

UK retail sales data will also be published on Thursday, followed by public sector net borrowing stats on Friday.

As for the Indian Rupee, it’s likely to be influenced by the events of Wednesday’s Federal Reserve meeting.

If the US bank hints that more interest rate hikes are on the way the Rupee could weaken, but a downgraded US rate hike forecast would lead to stronger demand for emerging market currencies.

Thursday’s Indian trade balance update from May could also influence Indian Rupee exchange rates towards the end of the week.

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TAGS: Pound Rupee Forecasts