The Indian Rupee plunged massively against the Pound as the European session opened on Monday on the back of the news that Indian central bank governor Raghuram Rajan would not continue to serve after his term has finished.
Rajan is often credited for the stability of the Rupee. The Indian currency was still part of the ‘fragile five’ as he entered the position but now sits fairly solid. Rajan has also seen domestic inflation halve during his tenure.
Today the Indian government announced plans for sweeping reforms of the rules governing direct foreign investment, possibly in reaction to the news above. This is a sign that the government is saying India is open for business amid concerns that Rajan’s departure could spell trouble for the fledgling economy.
At the same time in the UK, Sterling has seen massive gains thanks to the suspension of both ‘Remain’ and ‘Leave’ campaigns and the perceived shift towards a pro-EU sentiment. The implied probability of a ‘Brexit’ has hit 67% with Bookmakers placing their odds nearer 70%.
As of time of writing the Pound Indian Rupee exchange rate sits at 98.6840, up 2.4% from the start of today’s session.
GBP/INR Gained Modestly Last Week
Last week was mostly stable for the pairing but Monday did experience a little movement. A preliminary dip followed by a small rally marked the only significant shift until Thursday’s shocking murder of British MP Jo Cox. The late Cox was a massive supporter of the ‘Remain’ camp as well as an avid humanitarian. She was gunned down and stabbed in the street by a man credited with being a right-wing extremist. Thomas Mair reportedly exclaimed ‘Britain First!’ during the attack.
The Pound’s previous small rally against the Rupee appears to be due to less-than-ideal Indian inflation data failing to enthuse investors. Inflation has increased, getting further away from the Reserve Bank of India’s 4% target and raising concerns that the central bank’s monetary policy may not be having the desired effect.
Rupee (INR) Pressured by Safe-Haven Demand
Safe-haven demand placed downward pressure on the Rupee and last week’s polls showing an increase in pro-‘Brexit’ sentiment failed to help to Pound as well. This saw the pairing trade fairly narrowly after Monday’s small rise.
GBP/INR saw a miniscule rally on Wednesday as the Indian trade purse was shown to be further into the red, just beating negative forecasts.
Horrific News lifts GBP/INR to Lofty Heights
Before Jo Cox’s distressing murder, ‘Brexit’ concerns were reaching a fever pitch that saw the Pound depreciating across the board.
The Pound Indian Rupee exchange rate saw a low of 94.60 on Thursday morning but once news of Jo Cox’s death hit the newswires, the rate started an uptrend that has continued today. GBP/INR traded at a weekly high before the weekend and today it saw its highest rate since late-May.
EU Membership Referendum Ahead, Significant Currency Volatility Expected
The biggest influence for the GBP/INR pairing in the near future will of course be the UK’s referendum on its EU membership, due to take place this Thursday.
Ecostats for both the Indian and British economy are disappointingly thin on the ground. UK government public finances are set for release on Tuesday and the Bank of England (BoE) will continue its scheme of insuring banks have enough liquid assets for the aftermath of the vote. The effect of the BoE move is hard to gauge as it shows that the bank thinks a ‘Brexit’ is a distinct possibility but it also calms uncertainty somewhat thanks to the small safety-net it offers.
General market trends will also have a recordable impact on the Rupee. If a risk-on mood manages to propagate it could point investors towards INR as safe-haven demand was huge last week thanks to the Bank of Japan’s dovish rhetoric and decision to leave rates on hold.
Realistically we will have to wait to see what kind of crater Thursday’s referendum leaves on the UK’s economic landscape to see what the future holds.