Indian Rupee (INR) Exchange Rate Loses Momentum as Election Concerns Mount
Yesterday the Rupee softened against several of its major currency counterparts as domestic inflation figures disappointed expectations and investors speculated on the outcome of the upcoming Indian election.
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The Indian inflation figures added to concerns that the profitability of domestic assets will suffer.
Today the emerging-market asset remains under pressure, and one-month implied volatility in the currency has experienced its biggest increase since the end of August.
Although the Bharatiya Janata Party (India’s main opposition party) is currently dominating in the opinion polls, there are still a few weeks to go until final votes are cast and some industry experts are adopting a cautious stance.
As expressed by one Mumbai-based foreign exchange trader; ‘Volatility in the Rupee has shot up because exactly one month from today, we have the election outcome. There are position adjustments happening ahead of election results.’
According to economists, if the BJP wins outright (displacing the ruling Congress party) long-term Rupee strength could be triggered. A coalition, on the other hand, may result in losses for the currency.
While some higher-risk currencies benefited from the news that growth in China slowed by less than industry experts had been expecting, the Rupee still extended declines against the US Dollar and weakened against a bullish Pound as trading progressed on Wednesday.
The ‘Greenback’ is currently deriving support from this week’s impressive US inflation and retail sales data and the Pound broadly strengthened following the release of unexpectedly upbeat UK employment figures.
The news that the UK’s unemployment rate dropped to its lowest level for several years triggered widespread Pound gains and the GBP/USD pairing brushed a four-year high.
The Pound is currently trading against the Rupee in the region of 101.3440
The US Dollar is currently trading against the Rupee in the region of 60.2600