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GBP to INR Exchange Rate Fails to Sustain Gains as BoE?s Broadbent Disappoints

July 11, 2017 - Written by Ben Hughes

A lack of appeal in emerging market currencies like the Indian Rupee has not helped the British Pound to Rupee exchange rate’s recovery this week. Sterling traders are hesitant to buy the Pound amid rising economic uncertainties.

After last week’s big drop, GBP/INR began this week trading at the level of 83.25. The pair has since slipped further and besides a brief jump on Tuesday morning has generally trended near the level of 83.00.

GBP Sheds Gains on Bank of England (BoE) Policymaker Comments

The Pound briefly saw a surge in demand on Tuesday morning.

Investors firmed on the British currency ahead of a speech from Bank of England (BoE) policymaker Ben Broadbent. They had been hoping that Broadbent would offer his thoughts on UK monetary policy and take a more hawkish stance.

However, in the afternoon Broadbent’s speech came and went without any notable developments on his monetary policy views. Analysts generally perceived that his view was unchanged or that he would rather wait and see rather than offer any fresh forward guidance at this time.

According to Larry Elliot, economics editor for The Guardian;

‘Broadbent voted for no change at the MPC’s last meeting and the fact that he didn’t mention interest rates once in his speech suggests strongly that he will vote the same way again in August.’

Instead of making any mention of monetary policy, Broadbent focused on the ways in which the Brexit process could affect the UK trade outlook. In his speech he stated;

‘All else equal, the first shift (i.e. away from services exports) would tend to lower UK income, the second to raise certain costs (that is, of food and machinery). And, albeit on a smaller scale, relative to their (much larger) GDP, the same would be true for the EU16. Trade really is mutually beneficial and less of it costs us all.’

Broadbent’s focus on trade has also left analysts believing he isn’t entirely optimistic about the Brexit process, which has put additional pressure on BoE tightening hopes and Pound trade this week.

INR Sturdy Despite Low Demand for Emerging Market Currencies

The Indian Rupee has continued a strong streak this week, pushing the Pound back towards July lows after the day’s underwhelming Bank of England (BoE) news.

Weakness in the US Dollar, as well as market optimism about India’s new GST tax laws, have left the Indian Rupee stronger in recent weeks.

Some analysts have even noted that the Rupee’s persistent strength could begin to become a problem for exporters. According to ratings company Crisil, the strong Rupee could dent India’s Q2 profit-margins.

According to Crisil’s senior director, Anuj Sethi;

‘While a majority of exporters have weathered the forex storm so far, any significant rise in the rupee from here would impact credit profiles of exporters in the vulnerable sectors. The rupee’s relative strength versus competing currencies, and business challenges constrain the competitiveness of exporters in some sectors.’

The Rupee has been little effected by recent Indian data, but as analysts and the Reserve Bank of India (RBI) have issued warnings on the currency’s strength, further gains may be limited.

GBP/INR Forecast: UK Wage Growth Results in Focus

Wednesday will be a big session for Pound exchange rates, as May’s UK wage growth results could impact Bank of England (BoE) tightening bets.

In recent months, wage growth has slowed and inflation has accelerated, leaving UK consumers with less disposable income. This has led to warnings about potential economic slowdown in Britain’s consumer-facing economy during the second half of 2017.

If UK wage growth beats expectations, investors will become hopeful that Britain’s consumers and economic activity could be more resilient than expected later in the year. This would lead to a rise in BoE tightening bets and a stronger Pound.

The opposite is also true. Poor wage growth data could leave GBP/INR even weaker by the end of the week.

Still, emerging market currencies have been unappealing this week and analysts have been increasingly calling the Indian Rupee overvalued.

As a result, further GBP/INR losses may be limited by potential Rupee weakness.

However, Wednesday’s June inflation and May industrial production stats from India could give the Rupee even stronger upside support if they impress.
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