Indian Rupee falls on unpredictable elections

05-14-2009 14:08

Today the Indian Rupee decreased versus the Dollar and faced a second bearish day as the Indian elections are unpredictable concerning the definite winner that will create the new government. The Japanese Yen increased yesterday, following a rather weak Asian trading session, provided that markets started to prefer safe-haven assets and currencies and responded to the report of the British central bank concerning inflation.

Uprise of high-yielding assets

The Indian Rupee benefited from the recent increase of the high-yielding assets but it was strongly affected by the double effect of the current national elections and increased worldwide risk-aversion. For the first time in two months the Rupee reached a 50 dollar level yesterday, as a result of traders expecting the winning party to be obliged to form a broad coalition that consists of smaller parties to create a government. It is expected that the present ruling coalition, which is led by the Indian National Congress, will not improve things more than the opposition which is led by the Bharatiya Janata Party.

Another layer of uncertainty

According to analysts the elections increase the unpredictability of the already risky Indian market. The Indian fundamentals indicate that domestic companies will face difficult times and therefore it does not provide bullish sentiment for the Rupee. The Indian currency is expected to decline during the following weeks.

Economy will heal but probably slow

Today the Bank of England released a report which indicates that an increase in consumer spending could be far away currently. In general the report resulted quite gloomy and did not provide evidence concerning the normalization of the worldwide financial system. The entire report was resumed by stating: At the end of the day the economy will recover, but this will be a slow process.

BoE more bearish

The Japanese Yen reached the highest level since April 28 versus the US Dollar and rose against the Pound and Euro. Analysts believe that the BoE resulted more bearish on the markets than the traders estimated. That fact eliminated a major part of the risk-hungry prospects and will lead to a more extended modification of the high-yielding assets, together with currencies that in the last few years increased versus the Yen in carry trade.