Although the week has seen an increased level of risk aversion in general trading, the GBP/INR exchange rate has remained on an overall downtrend thanks to some less than impressive economic data from the UK.
In line with other emerging market currencies, the Rupee has been weighed upon by the recently renewed speculation as to the possibility of a Fed interest rate hike coming before the end of this year. On Monday President of the Atlanta Fed Dennis Lockhart made comments of a decidedly hawkish nature, with the suggestion that barring continued global market volatility the case could be made for a hike at either the November or December Federal Open Market Committee (FOMC) sessions. As this was followed up by a marked rise on the US House Price Index for July, investors were quick to buy back into the ‘Greenback’ as a fresh wave of risk aversion overtook trading.
However, the GBP/INR currency pair failed to particularly capitalise on this softening as Tuesday’s UK Public Sector Net Borrowing figure for August revealed a widening in the domestic deficit. While traders had anticipated a substantial rise in borrowing from the previous month the ultimate result of 11.3 billion Pounds was far beyond the 8.8 billion forecast. Boding ill for the chances of the Bank of England (BoE) choosing to raise interest rates in the near-future, this also demonstrated the extent of the negative impact that recent market turmoil has had upon the health of the domestic economy. With investors’ expectations now leaning more towards a second or third quarter hike in 2016, the immediate appeal of Sterling naturally diminished, pushing the GBP/INR exchange rate to a daily low of 101.1310.
This morning’s Chinese Manufacturing PMI fell significantly short of forecast, to the index’s lowest level since 2009, to prompt another surge of selling on the more sensitive currencies. Printing at 47 rather than 47.5 as anticipated, the figure indicated that manufacturing output in the world’s second largest economy is continuing to markedly contract. Undermining the positions of other Asian assets, this led to the Asian Development Bank cutting growth forecasts for a number of local economies, including India. Nevertheless, this latest blow to the Rupee failed to substantially boost the GBP/INR conversion rate as the Pound remained in a downtrend across the board.
While Sterling may rally on Thursday’s BBA Loans for House Purchase figure, which is expected to show an increase from 46,033 to 47,000, the Rupee stands to be driven primarily by foreign data over the coming days. After the weekend the Reserve Bank of India (RBI) Rate Decision could spur further weakening for the local currency as policymakers are expected to instigate another cut to interest rates, to potentially lower the benchmark from 7.25% to 7%, in response to recent market pressures. A cut, while Rupee-supportive in the long-term, is likely to result in fresh bearishness, to the benefit of the GBP/INR currency pair.