GBP INR Exchange Rate Trends Narrowly Despite Weaker Indian Manufacturing PMI

June 1, 2017 - Written by John Cameron

STORY LINK GBP INR Exchange Rate Trends Narrowly Despite Weaker Indian Manufacturing PMI

Speculation over the likely outcome of next week’s general election continued to provoke volatility for the Pound Indian Rupee exchange rate, with markets sensitive to the latest opinion polls.

While YouGov estimated that the Conservative lead had narrowed to just three points, though, other polling companies are still pointing towards the Tories maintaining a wider lead over Labour.

This uncertainty over the election result and fears over the possibility of a hung parliament has prompted dramatic shifts in the direction of the Pound, with GBP exchange rates struggling to sustain any particular momentum.

Demand for Sterling is likely to remain fragile during the final days of the election campaign, with investor jitters unlikely to ease until the final results are in.

If the chances of the Conservatives returning to power with an increased majority are seen to fall further, though, the GBP INR exchange rate looks set to extend its recent losses.

Markets continue to view a larger Tory majority as preferential for the upcoming Brexit negotiations, in spite of Theresa May’s persistent hard-line approach to the matter.

Even so, barring a significant shock the impact of the election is unlikely to linger on the Pound for long, as Tim Riddell, research analyst at Westpac, noted:

‘Post election focus should also quickly shift towards the 15th June MPC meeting and how the election impacts confidence, particularly around both housing and retail sectors.’

The Indian Rupee has struggled to capitalise on the relative softness of the Pound, however, as domestic data failed to encourage investors.

In a blow to the INR outlook the first quarter Indian gross domestic product fell significantly short of forecast, clocking in at 6.1% rather than 7.1%.

While this maintained a solid level of growth the downside surprise still weighed heavily on the appeal of the emerging-market currency, particularly as the general sense of risk appetite remained limited.

An unexpected slowing in the May manufacturing PMI also dented confidence in the Rupee on Thursday, adding to the impression that the Indian economy is not as robust as hoped.

A similar dip in the corresponding services PMI could increase the downside pressure on the Rupee, offering the GBP INR exchange rate a rallying point amidst the ongoing election jitters.

Risk aversion may also continue to drag on INR exchange rates, especially if the Federal Reserve looks to be on course to raise interest rates at its next policy meeting.

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TAGS: Pound Rupee Forecasts