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Rupee to Pound Exchange Rate (INR/GBP) Shows Gains on Govt Raised Foreign Investment Cap

August 6, 2014 - Written by David Woodsmith

GBP/INR Thursday 07/08/2014 – The Indian Rupee was under pressure from risk aversion on Thursday as worries over a Russian invasion of Ukraine increased. Against the Pound, however the Rupee managed to advance after the Indian government approved raising the cap for foreign investment into the nation. The move will create more jobs as well as going to improve the country’s infrastructure and defence.

The Pound Sterling currently converts at 1 GBP buys 103.3047 Indian Rupees (revised 07/08/2014)

On Wednesday, the Indian Rupee (INR) exchange rate declined to a five-month low and against the Pound (GBP) and US Dollar (USD), declineing by 0.5% as demand for riskier emerging market assets fell on geopolitical concerns.

Market sentiment was under mounting pressure on Wednesday after Russia mobilised thousands of troops to the eastern Ukrainian border. The action has raised fears that Moscow could launch an invasion in order to assist pro-Russian rebels fighting the Western backed Ukrainian government. With Ukrainian forces preparing to launch a large-scale assault against the last rebel stronghold of Donetsk the world is concerned that Russia could intervene.

"On a human scale, the situation in the east -- particularly in Donetsk and Luhansk -- is disastrous. Today, with all certainty, there's a need to speak about a true war," Vitaly Churkin, Russia's ambassador to the United Nations, said Tuesday.

According to reports, Russia has built up a force of 17 battalions of infantry, artillery and air defence units. US officials are warning that the rapid build-up of troops could see Russia launch a cross-border attack with little to no warning.

With the EU and NATO, unprepared or unwilling to come to Ukraine’s aid a potential conflict between Russia and Ukraine will have big implications upon the Eurozone and global economy.

"They are very capable Russian regular units and can move in a matter of hours and could significantly disrupt the situation" in eastern Ukraine, said an official from NATO.

Fears of a war have sent investors fleeing to the safe haven currencies of the US Dollar, Swiss Franc and Japanese Yen. The moves come at the expense of the emerging market currencies such as the Indian Rupee and South African Rand.

The Rupee was also weakened against the ‘Greenback’ as demand for the US currency increased on signs that the world’s largest economy is continuing to improve. Yesterdays stronger than forecast ISM non-manufacturing and factory orders data added to those expectations.

‘The Rupee is largely driven by the US Dollar’s strength. The concern worrying investors is that US Dollar supply may dry up when quantitative easing finally ends this year,’ said Anindya Banerjee, a currency specialist at the Mumbai based Kotak Securities Ltd.

The ‘Greenback’ is forecast to make further gains against most of its major peers.

“You’ve got to stick with the Dollar, Ukraine is back in focus as something that could have a fairly negative impact on growth. The U.S. is in a far better shape and the dollar’s historic link with periods of uncertainty and risk is second to none, so that’s where investors would go,” said Derek Halpeeny, the head of global market research at Bank of Tokyo-Mitsubishi UFJ Ltd.

The Pound was also able to advance against the Rupee despite the release of data on Wednesday, which suggested that the UK economy is slowing.
In data released by the Office for National Statistics, industrial production increased by 0.3% in June, undershooting forecasts for a 0.6% gain, after falling 0.6% in May.

Industrial output rose 1.2% year-over-year, compared to expectations for an increase of 1.5%. Manufacturing production was up 0.3% in June, after falling 1.3% in May. Economists had forecast an increase of 0.6%. Manufacturing output was 1.9% higher on a year-over-year basis, falling short of forecasts for a 2.1% rise.

A separate report also showed that Britain’s shop prices declined to its lowest level on record last month.

“We have become much more conscious of the risks for the Pound. Partly around the fact that the data is softening slightly and also around Scotland’s referendum,” said an economist from BNP Paribas.

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