Indian Rupee (INR) Exchange Rate: Rupee Strengthens as Trade Deficit Narrows
The Indian Rupee was boosted against the US Dollar overnight as the North American currency broadly softened ahead of Janet Yellen’s announcement to lawmakers.
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The new Federal Reserve Chairman is due to speak at 15:00 GMT and the ‘Greenback’ is likely to remain under pressure until then.
The US Dollar also lost ground against peers like the Rupee as a result of expectations that Thursday’s advance US retail sales report will show that sales stagnated in January after climbing by just 0.2 per cent in December.
Retail sales excluding auto and gas are forecast to have increased by 0.2 per cent last month.
Additional Rupee gains were made during the local session as data showed that India’s trade deficit narrowed last month, edging from 10.1 billion Dollars in December to 9.92 billion Dollars in January. The improvement was largely the result of imports dropping by 18 per cent and exports climbing by 3.8 per cent.
In the opinion of Barclay’s analysts; ‘We expect India’s trade deficit to remain manageable in the coming months. We now see significant risks that the current-account deficit in the year through March will be lower than our forecast of 48 billion Dollars.’
Although today’s data lent the Rupee support, gains against the Pound were a little limited as Sterling advanced following the release of surprisingly upbeat retail sales figures for the UK.
If Janet Yellen refers to the patchy nature of recent US data releases and indicates that the Federal Reserve’s current tapering of stimulus could be revised, the Rupee could extend its rally during North American trading.
Of course, additional Rupee movement is also likely to occur tomorrow following the publication of Indian inflation rate data and manufacturing/industrial production reports.
Economists have forecast that industrial production in India contracted at a slower pace in December, shrinking by 1.2 per cent year-on-year following contraction of 2.1 per cent in November.
Consumer prices are expected to have climbed by 9.11 per cent in January, less than December’s 9.87 per cent gain.
The Bank of England’s inflation report will also have a significant impact on the GBP/INR pairing.