Pound to Rupee (GBP/INR) Exchange Rate Eases on Positive Indian Export Data

July 16, 2014 - Written by Frank Davies

STORY LINK Pound to Rupee (GBP/INR) Exchange Rate Eases on Positive Indian Export Data

The Pound to Rupee (GBP/INR) exchange rate gave back some of its earlier gains on Wednesday after data showed that exports out of the Asian nation increased strongly last month and as concerns over this year’s monsoon rains eased.

As the monsoon rains intensified concerns over rising inflation and a possible shortage of food products eased, supporting the Rupee. The shortfall in the rains which fall between June and September narrowed to around 40% of the 50-year average. Only last week it had stood at 43%.

Early in the session the Indian currency had been weakened by comments made by US Federal Reserve Chairman Janet Yellen and the publication of stronger than forecast UK unemployment data.

In her address to Congress on Tuesday evening, Ms Yellen suggested that interest rates in the world’s largest economy could rise sooner than expected if the economy continues to show signs of strengthening. She also confirmed that the Fed’s quantitative easing programme will end in October as things improve. If the QE programme does end then we can expect the Rupee and other commodity and emerging market currencies weaken against the ‘Greenback’.

“A risk-on mood in domestic equity and bond markets, due to easing inflation and improved outlook for the monsoon rains pulled the Rupee back. The Rupee was initially weakened on the back of Yellen’s comments on interest rates,” said Anindya Banerjee from Mumbai based Kotak Securities Ltd.

Also adding support to the Indian Rupee was the release of a report which showed that exports grew strongly in June.

According to the data released by the Ministry of Commerce and Industry, India’s exports increased by 10.22% to $25.4 billion in June, mark the second consecutive month that the export figure has been in double figures.

The report also showed that imports advanced by 8.33% annually to $38.24 billion, shrinking the nation’s trade deficit to $11.76 billion, an 11-month high. The main cause for the deficit was a 65% increase in the amount of gold being imported into the country. Recently the
Central Bank eased the rules regarding importing bullion from overseas sources. India is the world’s second largest importer of the precious metal.

The Pound meanwhile was finding support from increased expectations that the Bank of England will raise interest rates before the end of the year.
Speculation of a rate rise rose after data released by the Office for National Statistics showed that the UK’s employment rate matched a record high and that the country’s economy was continuing to create jobs.

The unemployment rate fell to 6.5%, its lowest level since the end of 2008 and was down from the 7.8% recorded at the same time last year. The total number of people out of work fell 121,000 to 2.12 million.

The number of people in work soared by 254,000 in the second quarter and was up 929,000 from the preceding year. It is the largest rise recorded since records began back in 1971.

Further gains for the Pound were held in check however as a separate report showed that wage growth was still weak. Not including bonus payments, wage growth fell to 0.7%, a drop from the previous figure of 0.9%. Economists had been hoping that wage growth would show signs of picking up this year.

“The striking divergence between employment and pay continues. While the employment rate has never been higher, the average weekly earnings of employees excluding bonuses have risen by only 0.7% over the past year. The latest Consumer Price Index shows inflation running at 1.9%,” said ONS Deputy Chief economist Peter Patterson.

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