GBP/INR returned to the bullish stance after losing momentum yesterday. Currently, one British pound buys 94.672 Indian rupees, up 0.50% as of 5:50 AM UTC. On Tuesday, the price couldn’t break above 95.000 as it faced strong resistance. It will likely have another attempt later today.
Larger timeframes show that the pair has been rallying since May 17, after reversing a downtrend that lasted for a month.
India’s Services Sector Records Three Months of Contraction
The rupee has extended declines after IHS Markit released India’s services activity data earlier today. The dominant sector experienced another month of catastrophic contraction in May. The Nikkei and Markit’s services purchasing managers index (PMI) for India increased to 12.6 last month from April’s record low of 5.4. However, it was way below analysts’ expectations of a return to 23.0. The 50 mark separates growth of contraction.
Thus, the services sector saw no positive month during the spring months. The last time when the industry contracted for three straight months was at the end of 2016, following a ban on the use of high-value currency notes.
While the government is trying to ease restrictive measures in some regions, it has extended the lockdown in many other areas until the end of June. India has reported over 200,000 confirmed cases and more than 5,500 deaths.
IHS Markit economist Joe Hayes commented:
“Given the stringency of the lockdown measures imposed in India, it is no surprise to see the severity of the declines in April and May. Demand for services, both domestically and overseas, continued to plummet in May as clients’ businesses remained closed and footfall remains drastically below normal levels.”
Besides the weak performance of the services industry, rating agency Moody’s has downgraded India’s sovereign rating to Baa3 with a negative outlook, citing the extended period of slower growth and rising debt.
Elsewhere, the sterling is supported by hopes that the trade talks between the UK and the EU would lead to some results, as Britain hinted it was ready to compromise on fisheries and other important issues. In exchange, the EU will have to ease its regulatory compliance demands.