GBP/INR Boosted By Improved UK CPI
The appeal of the Rupee was dented at the start of the week by the revelation that China’s Consumer Price Index had failed to climb as expected. Weaker inflationary pressure in the world’s second largest economy sparked a decline in market risk appetite, to the detriment of the emerging-market currency. Markets remain concerned that the Chinese economy could be facing the prospect of a hard landing, with the Indian economy likely to suffer spill-over effects in the event of a more severe slowdown.
On the other hand, the Pound was boosted by news that Indian conglomerate Tata Steel had successfully secured the sale of its Long Products Europe division. While the majority of the company’s UK assets remain on the market, this deal safeguarded more than 4,000 jobs, boosting hopes of further progress. With the future of the UK steel industry looking a little less uncertain the GBP/INR exchange rate trended sharply higher on Monday, in the region of 94.5353.
Tuesday’s UK Consumer Price Index also bettered forecasts, with domestic inflation rising from 0.3% to 0.5% on the year in March. This stronger showing prompted the Pound to extend its bullish run against rivals, seeming to increase the odds of the Bank of England (BoE) opting to raise interest rates before the end of the year. Markets were equally encouraged by the suggestion that ‘Brexit’ uncertainty has had a less detrimental impact on the UK economy than anticipated.
These bullish gains were not to last long, however, as the GBP/INR exchange rate returned to a downtrend after reaching a fortnightly best of 95.3116. Confidence in the Pound faltered in response to polls indicating a further narrowing of the ‘Remain’ camp’s lead, with the news spurring investors to sell back out of the still vulnerable Sterling.
Declining Inflation Edges Toward RBI Target
Demand for the Rupee, meanwhile, increased on Tuesday thanks to the March Indian inflation rate. While February’s figure was revised upwards to 5.26% this disappointment was countered by a more substantial dip in inflationary pressure. With inflation now standing at 4.83% on the year markets were encouraged to see the measure moving towards the Reserve Bank of India’s (RBI) 2016 target of 4%, particularly as this downtrend manifested prior to the RBI’s recent decision to cut interest rates to 6.50%.
Stronger-than-expected Chinese trade data was not enough to keep the Rupee on stronger form on Wednesday, however, as hawkish comments from the Fed encouraged market jitters. The underlying fundamentals of the Chinese economy remain somewhat concerning, helping to deter investors from buying into the Rupee. Consequently the GBP/INR currency pair trended within the range of 94.4440 and 94.9790 during the day’s European session.
Wider Indian Trade Deficit to Dent INR
Further volatility is expected for the Pound as the BoE meets for its latest interest rate decision on Thursday. Despite the week’s positive data, it does not seem likely that the Monetary Policy Committee (MPC) will alter its stance on monetary tightening, with another 9-0 vote in favour of leaving rates unchanged anticipated. Should the tone of policymakers prove generally dovish or highlight further ‘Brexit’ concerns, the GBP/INR exchange rate is forecast to trend lower.
On Friday March’s Indian trade balance could drag on the Rupee, with economists anticipating that the country’s trade deficit widened from -6.54 billion to -8.10 billion US Dollars. This would not bode so well for the domestic economy, suggesting a greater exposure to negative global risks. Consequently the GBP/INR pairing could make renewed gains going into the weekend, particularly if China’s first quarter GDP prompts a fresh move away from higher-risk currencies such as the Rupee.