The Pound to Indian Rupee exchange rate fell to a fresh three-year low on Tuesday as investors reacted to the possibility that the UK economy could be line for further financial stimulus. The pairing dropped to 80.82 at one point before stabilising at around 81.60 on Wednesday morning.
Pound (GBP) Rallies Following Brief Collapse
Investors fled from the Pound on Tuesday afternoon after Chancellor of the Exchequer Philip Hammond said that he would be willing to authorise additional quantitative easing if requested by the Bank of England. He stated:
‘No request for quantitative easing has ever been refused, and I can’t see why it would be different in future.’
This has added to market fears that the BoE may announce further rate cuts next week following the bank’s latest rate decision.
The Pound quickly bounced back however, recouping around half of its losses by the end of the afternoon as BoE Governor Mark Carney avoided mentioning QE during his appearance at the House of Lord.
Better than expected data this morning from the British Banking Association on UK mortgage approvals, which rose from 36.7k to 38.3k in September, helped Sterling recover the remainder of Tuesday’s losses.
However the Pound was unable to rise much further against the Indian Rupee as investors are still uncertain about the UK’s split from the EU and fear that the British government will pursue a ‘hard Brexit’ in which the UK will lose access to the single market in exchange for greater immigration controls.
Indian Rupee (INR) Pressured By Rising Fed Bets
The Indian Rupee has been hamstrung recently by rising demand for the US Dollar owing to increased bets that the Federal Reserve will hike interest rates in December.
Bets have risen significantly over recent weeks as Democratic presidential candidate Hilary Clinton is generally perceived to have taken the lead against her republican rival Donald Trump, with his campaign marred by accusations of sexual misconduct.
GBP/INR Exchange Rate Forecast
The GBP INR exchange rate is likely to remain fairly stable as both currencies are hindered by external factors, the Pound by ongoing uncertainty over ‘Brexit’ and the Indian Rupee by a strong US Dollar.
Sterling might be able to claw back some ground from the Rupee if Thursday’s UK GDP report shows some improvement in the third quarter. It is currently forecast to hold at 2.1% but a small rise in growth for the UK economy could give the Pound a slight boost. Conversely if Britain’s GDP should recede then Sterling could tumble.
India will release data on its foreign exchange reserves on Friday and will be looking to reverse the recent downtrend in the last two weeks, with analysts predicting it will rise to $368.2B. However as a low impact ecostat any gains made by the Indian Rupee are likely to be minor.