At the start of Tuesday’s session, the Indian Rupee weakened sharply but as the day progressed, the currency was able to recover ground against the Pound and US Dollar.
Early in the session, the Indian Rupee slipped to its weakest level since January against the ‘Greenback’ as Indian stocks sank to their lowest level in a month following Japan’s Daiichi Sankyo’s $3.6 billion share sale in Sun Pharmaceutical Industries. The broad selloff came, as businesses grew jittery over plans to introduce retrospective taxation on foreign portfolio investors. Also weighing upon the Rupee was resurgence in the strength of the US Dollar.
Prime Minister Narendra Modi’s government has said that it would move towards a tax-friendly regime to boost much needed foreign investment in India, but media reports released over the weekend said tax authorities have sent fresh notices to around 100 companies estimated to be worth around $6 billion.
‘They seem to be trying to browbeat us through a sustained campaign…if you want to do business in a country and derive value from the country, you are liable to pay tax in that country,’ said an Indian tax official.
As the session progressed, the Rupee managed to claw back its earlier losses on speculation that the Reserve Bank of India intervened in the currency markets to halt the Rupees slide.
The Pound Sterling was under pressure on Tuesday as a lack of market moving domestic data releases left it vulnerable to geopolitical factors. Political uncertainty has weighed on the currency in recent weeks and the pressure is set to increase as the May 7 general election draws closer.
With the polls suggesting that no party will be able to win an outright majority, concerns are building that negotiations on the formation of a coalition could take a long time. Both the Conservatives and Labour have ruled out forming a coalition with the Scottish National Party, which is expected to come third.
The Pound is forecast to experience volatility on Wednesday due to the publication of the minutes of the Bank of England’s (BoE) April policy meeting. If the minutes show that policy makers are becoming more dovish on their outlook for the UK economy the Pound will weaken.
The US Dollar experienced mixed trading on Tuesday due to a lack of data releases. The currency could make gains on Wednesday if US mortgage applications and existing home sales data come in positively.