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GBP/INR Exchange Rate Rises as UK Services Sector Posts Unexpected Growth

November 3, 2017 - Written by Ben Hughes

Today’s GBP/INR movement is largely a recovery effort for the Pound, given how far it fell on Thursday.

When the news came that the Bank of England (BoE) might not be considering more near-term interest rate hikes, the Pound fell sharply against the Indian Rupee.

The pairing opened trading on Thursday in the region of 85.6284, later crashing down to 84.2321 by the close of trading.

Pound to Rupee Exchange Rate Bolstered by Higher Reported Services Activity

After a day of drama and GBP losses on Thursday, the Pound has since started to appreciate against the Indian Rupee once again.

The Pound’s crash yesterday was mainly caused by trader disappointment, due to worse-than-expected forecasts from the BoE.

This came after a minimal increase in UK interest rates, from 0.25% to 0.50%; this was the first recorded rise in over a decade.

The day’s main UK news has been positive, showing an increase in UK services sector activity during October.

Giving a long-term outlook on this news was Duncan Brock of the Chartered Institute of Procurement and Supply (CIPS);

‘A mixture of forces were at play this month in the service sector, which reported the strongest growth in new business since May, but optimism remained subdued and there was a squeeze on profit margins as input prices continued to rise.

The main source of longer-term anxiety continues to be the path to Brexit. Service providers are concerned that political uncertainty is damaging the confidence to invest and weighing down on business optimism among their clients.

At the same time, it remains to be seen whether consumers will be spooked by the recent rate rise and will curb their spending, adding to the service sector’s uncertainty about future prospects’.

Indian Rupee Declines on Mixed Reports of Economic Activity

The latest Indian news has included looks at national manufacturing and services activity, along with a reading for infrastructure output.

The latest of these, the services reading, has been positive by showing an index increase from 50.7 to 51.7.

The author of the services report, Aashna Dodhia of IHS Markit, said;

‘The recovery from the implementation of the goods and services tax (GST) in July was sustained in the private sector in October, mainly radiating from service providers as growth in manufacturing was relatively subdued.

Moreover, the service sector reported the fastest rise in new business since June. That said, these key growth indicators remained relatively muted.

Although the degree of business confidence fell to the weakest since June, service providers retained an optimistic outlook regarding business activity over the coming 12 months, whilst the labour market was further reinforced as firms raised their payroll numbers over the month’.

The manufacturing reading was more disappointing, showing a slowdown from 51.2 points to 50.3.

This still shows growth in the Indian manufacturing sector, but puts the reading perilously close to the contraction range of anything under 50 points.

Aashna Dodhia also had some remarks about this reading;

‘India’s manufacturing companies struggled somewhat as the recent recovery enjoyed by the sector lost impetus in October.

Disappointingly, manufacturing production rose at the weakest pace in the current sequence of growth.

Inflows of new orders stagnated as the negative effects arising from the implementation of GST continued to dampen demand levels.

Furthermore, overseas demand for Indian goods dipped to the greatest extent since September 2013.

On the bright side, the labour market continued to improve, with manufacturers further increasing their staffing levels, and at a pace similar to September’s 59-month high’.

Future GBP/INR Exchange Rate could be Determined by Upcoming Trade Balance Stats

Once the storm of this week’s BoE news has blown over, the Pound could be influenced by the coming Friday’s trade balance result for September.

Out on November 10th, this is forecast to show a reduction in the trade deficit, which may be enough to trigger a GBP/INR rise.

Upcoming Indian data will consist of loan and foreign exchange reserve stats, also out on November 10th.

Unlike the UK trade balance figure, there are few expectations about major INR movement when these pieces of data come out.
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