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GBP to INR Exchange Rate Gains Limited on Brexit Uncertainty and Lingering Rupee Rally

March 14, 2019 - Written by Ben Hughes

Market expectations that a worst-case scenario no-deal Brexit is becoming less and less likely has helped the British Pound to Indian Rupee (GBP/INR) exchange rate to advance this week. However, lingering Brexit uncertainties and strong support for the Indian Rupee all week have made it difficult for the pair to hold its best levels.
Since markets opened this week, GBP/INR has climbed from its opening level of 91.10 due to optimism that a no-deal Brexit will be avoided. GBP/INR touched a weekly high of 92.96 on Wednesday night due to the vote against no-deal Brexit, but the pair has since slipped from those levels due to other factors.

Uncertainty over how the Brexit process will unfold over the coming weeks and if the EU will even agree to delay Brexit, assuming UK Parliament votes to delay Brexit, is limiting demand for the Pound.

This is making it easier for the Indian Rupee to keep GBP/INR from recovering too much of last week’s major losses. The Indian Rupee saw a surge in demand last week due to foreign inflows.

GBP Exchange Rates Holds Some Recovery as No-Deal Brexit Fears Fade

While a resilient and appealing Indian Rupee has prevented the Pound from regaining more of last week’s gains versus the Rupee, the British currency has still seen a surge in demand this week thanks to the latest Brexit developments.

By far the biggest and most bullish development for Pound investors this week has been how the Brexit votes over the past few days have doused market concerns about a possible worst-case scenario no-deal Brexit.

The UK government’s soft Brexit plan was defeated again at the beginning of the week which briefly limited Pound demand, but despite the deal being defeated investors have since become more and more confident that a no-deal Brexit will be avoided no matter what.

This is due to Wednesday’s Parliament votes on no-deal Brexit, which saw an amendment to prevent the UK from seeking a no-deal Brexit in any circumstances unexpectedly succeed.

It bolstered hopes that Parliament was taking more control over the Brexit process, and analysts now believe that a no-deal Brexit has very little chance at all of happening.

According to Tim Graf, Head of Macro Strategy at State Street Global Advisors, the chances of a no-deal Brexit were now under 5%. However, he warned about uncertainty regarding a potential Brexit process delay:

‘There is gradual optimism being priced in ... it’s clear parliament are starting to exert themselves more forcefully,

There is always the chance the EU won’t grant an extension if they are just going to be trying to push this deal through ... that’s where the caution comes in.’

INR Exchange Rates Avoid Major Losses despite Slowing Rally

The Rupee has slipped versus a surging Pound this week, but its losses have been fairly limited as well due to lingering market demand for the currency.

Demand for the Rupee surged last week, as foreign inflows into Indian equities left the Indian Rupee appealing.

Analysts perceived this as part of a seasonal movement which could slow or reverse at the end of March, which marks the end of the fiscal year.

However, speculation that India’s upcoming general elections could lead to another term of power for Indian Prime Minister Narendra Modi also supported the Rupee. Another term for the Prime Minister would keep market uncertainty to a minimum.

This speculation is helping the Indian Rupee to hold its ground this week as well, despite mixed Indian data in recent sessions.

GBP/INR Exchange Rate Forecast: Brexit Vote Reactions and Indian Trade Data Round off the Week

The way investors react to tonight’s UK Parliament vote on Article 50 and a potential delay to the formal Brexit date is likely to remain the driving force of Pound movement until the end of the week.

That is, unless Friday sees another surprising development in Brexit.

Assuming Parliament votes in favour of a Brexit delay, it is unclear how Brexit will proceed next. How long the delay will be needs to be agreed by the EU, and the UK still needs to reach some kind of agreement on how it wishes to proceed with Brexit.

So any news on those subjects towards the end of the week would of course have a notable impact on the Pound’s late-week movement.

Of course though, India’s upcoming trade balance data from February could also influence the Pound to Indian Rupee exchange rate if it surprises investors.

Looking ahead, analysts expect some kind of vote on Brexit next week, when the government’s Brexit plan may get a third shot at Parliament.

With Brexit news likely to continue to dominate, next week’s UK job, inflation and Bank of England (BoE) news is unlikely to be highly influential to the Pound to Indian Rupee exchange rate.
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