Pound Sterling Continues Down as Met Office Issues New Flood Warnings
The prospect of additional economic trouble caused by Storm Frank is looking more likely as the Met Office has issued at least 9 severe weather warnings, indicating that lives are at risk as a result of flooding. There are also more than 100 less-severe flood warnings and alerts across the UK, as river levels remain at record highs. Several places in the north of England have already been hit by floods, with an estimated cost to the UK economy of around £6 billion.
Sluggish inflation won’t be helped by closed businesses and consumers who are unable to spend money thanks to having been flooded, so the news that more harsh weather could be on the way may have traders fearing that a Bank of England (BoE) rate hike might be further away than originally anticipated.
The Pound Sterling to Indian Rupee (GBP/INR) exchange rate is pushing deeper into negative territory after claims that the British asset is significantly overvalued, while the Indian Rupee has been bolstered as traders reflect on a positive year for the country.
GBP/INR Exchange Rate Negative as 2016 Predictions Show Pound Sterling Losing Value
Analysts at Deutsche Bank have claimed that the Pound is the world’s most overvalued currency, predicting a vulnerable few months ahead which could see a significant drop in value for Sterling. The International Monetary Fund (IMF) has already claimed earlier this year that Sterling is overvalued by between 5% and 15%.
Forecasts over the future of UK monetary policy are varied, with some analysts predicting a rate hike in the second half of 2016, while others believe it will be 2017 before the Bank of England (BoE) finally increases interest rates. Even when hikes do happen, most traders are anticipating shallower increases than those delivered by the US Federal Reserve.
The government’s austerity measures are considered to be one of the major factors delaying a rate hike by the Monetary Policy Committee (MPC) as spending cuts harm consumption and stifle inflation. The news that the recent flooding over the Christmas period in the north of England could cost the UK economy nearly £6 billion in the long-term will serve to lower expectations of action by the BoE even further.
It is believed that Britain will hold its in-out EU referendum in 2016, so uncertainty surrounding this will also weigh on Pound Sterling, as a ‘Brexit’ will have wide ranging political and economic implications for the UK.
The GBP/INR exchange rate is currently trending in the region of 98.0890.
INR/GBP Exchange Rate Trending Positively as India Set to End 2015 as World’s Fastest Growing Economy
The Indian economy has grown at a faster pace than China, according to figures from the third quarter. India’s GDP increased 7.4% compared to China’s 6.9% increase and although growth forecasts have been cut, the final quarter of the financial year is still expected to see a growth of at least 7%.
India’s figures have been helped this year by a change made in January to the way that the Indian government calculates Gross Domestic Product. The surprise shift in methods at the beginning of the year saw statisticians change the base year they use for calculations to the financial period ending in March 2012, as well as including data from newer economic surveys and changing the benchmark to market prices. The move brought India’s calculation methods in line with those of most other countries.
India’s economic growth had been forecast to outpace China’s in 2017, but Q3 figures show that has already happened. According to a study by the Centre for Economics and Business Research (Cebr), India will jump from being the 7th largest economy in the world to the 3rd largest by 2031, pushing the UK down to 6th place.
The INR/GBP exchange rate is currently trading bullishly in the positive region between 0.0101 and 0.0102.
GBP/INR Exchange Rate Forecast: Thin Trading Volume During 2016 Run-Up
The last data due out for the UK in 2015 is year-on-year (YoY) and month-on-month (MoM) housing price changes. While the forecast shows only a small increase in the rise of house prices, with data currently sparse even a small change could have a significant impact, fuelling fears of a housing market bubble. There is no data for India due tomorrow, with the final pieces for the year on Thursday predicted to show that infrastructure output rose YoY from 2.61% to 3.2% and that the Government Budget Value reached INR-4112.46 billion.
The GBP/INR exchange rate is currently trending between 97.8130 and 98.9290.