The past week has seen the Pound Sterling to Indian Rupee (GBP/INR) exchange rate decline from a high of 100.3078 to a low of 98.7155 after the Rupee firmed ahead of a potential dive following a Federal Reserve rate hike.
This week, the Pound has had a number of knocks in response to UK data releases. Although most of the Pound’s gains this week came from optimism over ‘Super Thursday’, today was also the cause of a major decline in the value of the Pound. The gains made by the Pound let it peak at 100.0865. While nobody had forecast an interest rate increase to follow the Bank of England (BoE) Monetary Policy Committee (MPC) meeting, expectations were for several members of the Committee to break away and vote in favour of an interest rate hike; this would have implied that an interest rate increase will occur in the near future. As it happened, however, only one member of the Committee, Ian McCafferty, voted for a rate hike. Speaking shortly before the voting result was announced, McCafferty said ‘If we are minded to be gradual for good reasons, then I think we need to be careful not it leave it too late.’
The Pound was also damaged by the Indian interest rate decision earlier in the week. After the Reserve Bank of India decided to freeze the interest rate at 7.25% on Tuesday, the Pound depreciated, falling from 100.0167 to 99.1960. This result was accompanied by a disappointment result closer to home: the UK Construction PMI for July. Forecasts predicted a 0.4 point increase from 58.1 up to 58.5, but the actual result showed a drop down to 57.1.
Further disappointment came on Wednesday after the UK July Services and Composite PMI figures came in lower than both the previous figure and the forecast number. This saw the Pound soften further against the Rupee, with the GBP/INR exchange rate coming in at 99.1817. By contrast, both Indian July PMI data releases this week came in above the previous totals and forecast figures. These were the Nikkei Manufacturing PMI (released on Monday) and the Nikkei Services PMI (released on Wednesday). The Services result was particularly beneficial to the Indian economy as it saw the sector post a growth figure of 50.8 compared to the previous month’s contraction indicator of 47.7.
For the current and following week, Pound Sterling/Indian Rupee exchange rate movement may occur as a result of the UK Trade Balance figures, the US July Change in Non-Farm Payroll figure, and the Indian Production and Manufacturing results.
Tomorrow, the UK June Trade Balance results are in, and given that all three measures are forecast for an expansion of the UK’s trade deficit, the Pound can be expected to devalue against the Rupee if these predictions are accurate. On the same day, however, the US data may swing things back in the Pound’s favour; strong growth in US payrolls will increase the likelihood of the Fed bringing in an interest rate hike this year, and this will devalue the Rupee against its competitors.
The Indian data is forecast to show a slight decrease in Industrial Production and an increase in Manufacturing Production; any results that exceed or fall short of the forecast figures are likely to widen or possibly reverse the current GBP/INR downtrend respectively.