The Pound to Indian Rupee exchange rate edged higher on Monday morning and hit a monthly high of 84.52.
Sterling continued its recent recovery trend despite the Indian Rupee also edging higher after the weekend.
GBP/INR put in strong gains last week as Sterling strengthened and risk-aversion held back the Rupee.
Pound Sterling Strengthening on BoE Hopes
After months of poor performance due to Brexit uncertainties and underwhelming economic data, the Pound has managed to advance this week.
The British currency was supported by last week’s ecostats, which were generally optimistic despite some underwhelming construction and services results.
June’s UK trade deficit was revised from £-4.56b to £-2.91b, and July’s manufacturing production results beat forecasts in both monthly and yearly prints.
NIESR’s latest Gross Domestic Product (GDP) estimate for Britain was decent too. NIESR predicts UK growth will have improved from 0.2% to 0.4%.
Thanks in part to these results, investors have been speculating that the Bank of England (BoE) could take a surprising hawkish tone in its September monetary policy decision, which takes place on Thursday.
BoE speculation has kept Pound exchange rates buoyant on Monday.
Indian Rupee Struggles to Hold Ground
The Indian Rupee has so far been unable to hold its ground against the recovering Pound.
Risk-aversion amid geopolitical concerns about North Korea weighed on demand for emerging-market currencies like the Rupee.
Investors have also been engaging in a bit of profit taking as the currency has seen strong gains against major rivals like the US Dollar (USD) this year.
That being said, demand for risk-correlated currencies has improved since markets reopened due to relief that North Korea did not hold another missile test over the weekend.
UK Inflation to Drive GBP/INR Exchange Rate
Speculation about how the Bank of England (BoE) could react to UK inflation has been the focus of GBP trade since markets opened for the day.
As a result, the UK inflation results and BoE meeting later in the week could cause major GBP/INR movement.
Tuesday will see the publication of Britain’s August Consumer Price Index (CPI) results, with annual inflation forecast to rise from 2.6% to 2.8%.
If inflation rises as expected, or comes in even higher, Sterling could climb on increasing speculation that the BoE could be pressured into tightening UK monetary policy.
On the other hand, poor inflation data or a highly dovish BoE later in the week could cause GBP/INR to shed some of its recent gains.
India’s key August inflation results will come in on Tuesday too, alongside July’s industrial and manufacturing production reports.