- Pound Sterling (GBP) Exchange Rates Soften – Better-than-expected BoE inflation report not enough to prevent losses
- Indian Rupee (INR) Also Struggles – Sectoral output disappoints
- ‘Brexit’ Fears Weigh on Sterling – Schäuble warns UK will have no access to single market in the event of a ‘Brexit’
- GBP/INR Exchange Rate Forecast to Hold Losses – Falling crude oil prices support Rupee
With ‘Brexit’ uncertainty fuelling Sterling movement, as volatility reaches levels not seen since 2009, renewed anxieties regarding a ‘Leave’ victory have weighed on demand for the British Pound today. Adding to ‘Brexit’ woes were comments from German Finance Minister Wolfgang Schäuble warning that the UK would have no access to the single market if it chooses to leave the European Union.
Pound Sterling (GBP) Exchange Rates Decline despite Positive Domestic Data
In the early stages of Friday’s European session the British Pound avoided losses despite ongoing anxieties regarding the EU referendum. This firmness was mostly the result of positive domestic ecostats.
April’s Construction Output bettered expectations on both a monthly and annual basis. However, the positive headline figure masked some concerning underlying trends as Chris Williamson, chief economist at Markit, explained;
‘Dig deeper and there’s good reason to treat the better news with caution. The underlying trend in fact appears to be one of weakening output, albeit to some extent due to what will hopefully be temporary uncertainty surrounding the EU referendum.’
The Bank of England’s (BoE) inflation report for the coming 12 months also bettered expectations as policymakers upgraded expectations of inflation from 1.8% to the bank’s 2% target.
As the session progressed, however, the UK unit declined versus its major peers. As already stated, the downtrend can be linked to controversial words from Germany’s Finance Minister.
Regarding the potential for the UK to access the single market as a non-EU member, Schäuble told Der Spiegel ‘That won’t work. It would require the country to abide by the rules of a club from which it currently wants to withdraw. If the majority in Britain opts for Brexit, that would be a decision against the single market. In is in. Out is out. One has to respect the sovereignty of the British people.’
He went on to add;
‘Europe will also work without Britain if necessary. At some point, the British will realise they have taken the wrong decision. And then we will accept them back one day, if that’s what they want.’
Indian Rupee (INR) Exchange Rates Trending Lower after Manufacturing and Industrial Production Contract
With the exception of the Pound, the Indian Rupee trended lower versus most of its peers during Friday’s European session, even after crude prices declined.
The main reason for the Rupee’s depreciation was disappointing sectoral data. Annual Industrial Production unexpectedly contracted by -0.8%, whilst annual Manufacturing Production contracted by -3.1%, in April.
‘Industrial production in India fell unexpectedly in April, year-on-year, as nine out of the country’s 22 industrial sectors reported a contraction, with the sharpest drop in the production of electrical machinery, followed by food and drink,’ wrote the Financial Times.
Also weighing on demand for the emerging-market Indian Rupee was a sharp drop in trader risk-appetite. This was thanks to tanking commodity prices and losses in all of the world’s major stock markets.
GBP/INR Exchange Rate Forecast: UK and Indian Inflation Data in Focus
Over the coming week there will be a number of domestic ecostats with potential to provoke volatility for the GBP/INR exchange rate. However, it is fair to speculate that data will continue to take a back-seat compared with market sentiment and EU referendum developments. Commodity prices will also play a hand in GBP/INR conversion rate volatility.
Data likely to be impactful, however, will be Indian and British Inflation figures due for publication Monday and Tuesday respectively.
Next Thursday will also see the Bank of England (BoE) interest rate decision, although most analysts predict this to be somewhat of a non-event given that policymakers will not wish to make any policy alterations until the EU referendum is concluded.
During Friday’s European session, the GBP/INR exchange rate was trending within the range of 95.7880 to 96.6610.