GBP/INR analysis: Double-top points to a potential rupee surge

The British pound to Indian rupee (GBP/INR) exchange rate has done well this year and is hovering near its all-time high of 111.38. It has jumped by more than 30% from its lowest point in 2022.

Bank of England interest rate decision 

The GBP/INR pair wavered after the Bank of England (BoE) delivered a hawkish interest rate decision last week. 

In it, the bank decided to leave interest rates unchanged at 5.0% after cutting them by 25 basis points in the previous meeting. The decision to pause was unanimous, with one of the nine members voting for a cut.

The bank’s decision was different from other major central banks like the Federal Reserve and the European Central Bank (ECB).

In its decision, the Fed decided to cut interest rates by 0.50% while the ECB slashed them for the second consecutive time. 

The BoE noted that it will continue cutting rates gradually in this meeting. As a result, analysts anticipate that it will deliver another cut either in November or in December or both. 

The bank’s concern is that cutting interest rates so rapidly will stimulate inflation, which has been moving downwards recently.

A report released last week showed that the headline Consumer Price Index (CPI) remained intact at 2.2% in August. Core inflation, which excludes the volatile food and energy products, remained at 3.6%. A key concern is that service inflation has continued rising in the past few months. In a note, analysts at ING said:

The BoE’s other concern is that the British economy is still slowing. According to the Office of National Statistics (ONS), the economy stagnated in June and July. It is estimated to be the slowest economy in the G7 after Germany.

In addition to leaving interest rates unchanged, the Bank of England decided to continue with its quantitative tightening process as it continues to reduce its balance sheet by £100 billion in the next 12 months. Most of these bonds will come from maturing UK government Gilts, popularly known as Gilts.

Reserve Bank of India decision ahead 

The next important catalyst for the GBP/INR exchange rate will be the Reserve Bank of India (RBI) scheduled on October 9.

The bank decided to leave interest rates unchanged at 6.5% for the ninth consecutive meeting. Most members voted to leave rates intact.

Analysts expect the central bank to leave interest rates unchanged because inflation concerns remain.

The most recent economic data showed that inflation retreated below the RBI’s target of 4%. However, food inflation has remained stubbornly high in the past few months.

Therefore, the bank will likely hold rates steady and then slash them by 0.25% in its December meeting. Analysts at State Bank of India (SBI) expect it to slash in February next year. In a note, an analyst at Emkay Global said:

GBP/INR technical analysis 

The daily chart shows that the GBP to INR exchange rate has rallied in the past few years as the Indian rupee has dived against most currencies.

It has soared from a low of 85.11 in September 2022 to over 111.22. As a result, it has remained above the 50-day and 200-day Exponential Moving Averages (EMA).

The pair has moved above the important support level at 107.95, its highest level in July last year.

At the same time, the pair formed a double-top chart pattern at 111.22, a popular bearish view. Therefore, the pair will likely have a sharp reversal in the next few days. If this happens, it will drop to the next support level at 109.20, its lowest point on September 11.