The Indian rupee continued to decline against the British pound in a broad sell-off in Asian emerging market currencies this week following the US airstrike on Qassem Soleimani, an important Iranian military commander.
The Indian rupee has been on the back-foot against the British pound for months after the RBI cut rates five times last year to spur domestic demand and support a slowing economy. The central bank kept rates steady at 5.15% at their latest meeting in December.
Rising oil prices in the New Year have additionally hit the Indian currency since India is heavily dependent on oil passing through the Strait of Hormuz.
Markets are now concerned that rising tensions in the Middle East and a possible Iranian retaliation could hinder the passage of oil through the important waterway.
Although the Indian rupee gained on the prospects of a trade deal between the US and China, any gains seem short-lived since a new conflict in the Middle East would heavily weigh on the currency.
Furthermore, the RBI’s buying of 10-year bonds in an attempt to push down yields has also been a headwind for the Indian rupee.
In the UK, Prime Minister Boris Johnson is expected to kick-start trade negotiations with the EU while hosting EC President Ursula von der Leyen in London on Wednesday. Any progress on that matter would be positive for the pound, but risks of a “no deal” Brexit still weigh on the currency.
From a technical standpoint, the GBP/INR pair continued to trade inside a healthy uptrend and near multi-month highs, although a strong bearish divergence was forming between the price and the RSI.
The December 13 high of 95.37 still acts as an important short-term resistance level, while the December 23 low of 91.99 could provide some buying pressure for the pair. As of 11:24 a.m. London time, the rupee traded at 94.44 against the pound.