Small Exchange: The pound is resilient, India booms and Saudi struggles continue

Andrew Munro 21 June 2017 NEWS

currency international

This week's currency news rounded up.

Britain plays it safe in the face of the falling pound

The British pound fell against the euro, the dollar and other major currencies on 20 June, as a delayed announcement finally declared that there would be no interest rate rise in the coming months. The announcement addressed speculation of a rate rise to help combat Britain's current inflation issues, but the Bank of England voted 5-3 to stay patient and maintain the previous wait-and-see approach.

This strategy has paid off so far, with many analysts surprised at the overall resilience of the British pound, despite Brexit and other upheavals. However, the recent slip might be a sign of things to come and analysts are warning of more ups and downs in the near future.

"We believe that the market is currently underpricing political and economic risks and would advise positioning for GBP depreciation, especially against the euro," says UniCredit.

India keeps raking in the tourist dollars

India's seen an incredible 20% increase in foreign tourist arrivals in May 2017 compared to May 2016, which in turn saw a 3.5% increase compared to May 2015. Tourists are also spending more than ever and India is now enjoying a 30% rise in foreign exchange earnings from tourism in May, compared to two years ago.

May 2017 saw 12,403 crore rupees (roughly AUD$2.5 billion) in foreign exchange earnings, compared to 10,260 crore rupees at the same time last year and 9,505 crore rupees in 2015. Despite some inflation woes on India's end and the continued stalling of the proposed Australia-India free trade agreement, AUD/INR currency pairs have remained relatively stable and will continue to do so on the back of tourism development and other growth.

Saudi Arabia's reserves keep dipping, but expectedly

Saudi Arabia continues dipping into its foreign currency reserves to help keep up with expenses as oil prices remain low. So far, it's estimated that the foreign exchange reserves have dipped by 27% from their peak in 2014. With the future of oil prices uncertain, the Kingdom's efforts to economically diversify itself continue and may account for a significant proportion of foreign currency reserve spending.

This is definitely enough to spook foreign investors and foreign money pulling out of the country might be exacerbating the liquidation of foreign currency reserves. At this rate, the outlook doesn't look good, but it's still far too early to panic and there's little reason to believe it will reach a crisis point. Oil prices and Saudi Arabia's diversification efforts both remain a wait-and-see.

Each week Small Exchange sums up currency news from around the globe and looks into how it impacts exchange rates and options.

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