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GBP INR Exchange Rate Slides after Improved Indian Inflation

March 14, 2017 - Written by Toni Johnson

Thanks to a sharper slowdown in wage growth than investors were anticipating the Pound to Indian Rupee exchange rate remained under pressure.

Even though the UK unemployment rate continued to fall this was not enough to particularly improve the mood towards Sterling, with the Bank of England still expected to take a cautious view at its March policy meeting.

[Previously updated 14/03/2017]

Despite starting the week on a stronger footing the Pound to Indian Rupee exchange rate slumped sharply throughout Tuesday’s European session, with Brexit worries mounting once again.

GBP Volatile Following Calls for Scottish Independence

While it offered some sense of certainty the approval of the government’s Article 50 bill did not encourage particular confidence in Sterling (GBP), instead ushering in a fresh phase of doubt over the domestic outlook.

As Scottish First Minister Nicola Sturgeon had already announced her intention to pursue a second referendum on independence the possibility of the Union fracturing returned to the fore.

Chris Saint, senior analyst at Hargreaves Lansdown, noted:

‘News that any new referendum won’t happen until late next year at the earliest may have softened the initial impact, but the UK’s looming political challenges are still driving sentiment with reports suggesting Theresa May will trigger Article 50 in the final week of March after getting the green light to initiate formal Brexit proceedings from Parliament last night.’

The threat of additional political turmoil on top of the already fraught task of Brexit negotiations nevertheless did little to benefit GBP exchange rates, especially as investors remain fearful of a potential ‘cliff edge’ exit.

Rising Indian Inflation Boosted INR Demand

Indian inflation was found to have edged closer towards the Reserve Bank of India’s (RBI) target in February, strengthening from 3.17% to 3.65%.

This boosted the Indian Rupee (INR), despite a generally muted atmosphere of risk appetite ahead of the Federal Reserve’s latest rate decision.

As a result the GBP INR exchange rate extended its losses further, with the Rupee making bullish gains against its rival on this fresh signal of economic strength.

Even so, the Rupee may struggle to hold onto its stronger footing as markets brace for Fed Chair Janet Yellen’s press conference, as the central bank could indicate that it is willing to pursue a more aggressive pace of monetary tightening in the coming months.

GBP INR Exchange Rate Forecast: Weak Wage Growth to Weigh on GBP

Confidence in the Pound could deteriorate further if Wednesday’s raft of UK labour market data proves discouraging.

Of particular note will be the latest wage figures, with growth in average weekly earnings forecast to have dipped from 2.6% to 2.4% in the three months to January.

With inflation set to increase further this would not bode well for consumer spending power, which has been one of the predominant driving forces of the UK economy following the Brexit vote.

A weaker showing here is unlikely to encourage any greater hawkishness from the Bank of England (BoE), with policy expected to remain unchanged at its meeting on Thursday.

If policymakers prove to be more cautious with regards to the outlook of the domestic economy and interest rates then the GBP INR exchange rate could see further softness this week.
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