India's Rupee Rebounds v Pound, Looks to Resume Long-term Uptrend
The Indian Rupee is in a long-term uptrend versus the Pound and this trend appears to be reasserting itself after a brief short-lived recovery for Sterling.
INR has a lot going for it – a stable reforming government, the fastest growing economy in the world, relatively high interest rates - the list goes on.
"Globally, India is perceived as a high growth economy and so FIIs (foreign investment inflows) are flocking here. Rupee will continue to gain," says a senior treasury dealer with a state-run bank.
Currently, a strengthening factor for the currency is the bullish Indian stock exchange which has broken to new highs.
"Rupee has been trading in a range and will continue to do so. With Sensex hitting life-time high, it gives a psychological comfort that foreign investment flows are continuing and will continue.
“On Friday, the Sensex crossed the 31,000-mark for the first time ever, ending at 31,028.21, up 278.18 points, or 0.90 percent,” said First Rand Bank's Head of Treasury Harihar Krishnamurthy.
The Rupee is supported by the Carry Trade which sees international capital flow from low yield jurisdictions to countries with relatively high interest rates, such as India, and investors pocketing the difference.
The Carry Trade is seen as risky, however, and whether or not it continues to buff up INR depends on whether global risk appetite continues to remain robust.
“We think INR is likely to benefit more from the global risk improvement given its higher carry. Risks to the trade could come from a sharp pick-up in global volatility causing INR carry trades to unwind or from earlier-than-expected BSP rate hikes,” says Morgan Stanley’s FX Strategist Hans Redeker.
In the short-term GBP/INR looks poised to break lower after reaching a key level of support at 82.380 which has underpinned market activity for most of May.
The 50-day moving average is at around the same level and will also prove to be a tough obstacle to more downside.
A definite break below that level, signaled by a move below 82.00 would probably see a break down to 81.00.
The risk that the UK is moving irrevocably and inevitably to a hard Brexit is pressuring Sterling pairs across the board.
Theresa May’s narrowing lead in polls and the possibility she may not win the mandate required to negotiate a soft Brexit, the likely stubborn intransigence of the EU in future negotiations and its unaffordably high Brexit bill, as well as the recent downwards revision in GDP are all conspiring to push the Pound back down to levels it hit when hard Brexit was a real risk last October.
