Update 2: Update: Dip in South African Inflation Encourages Pound South African Rand (GBP/ZAR) Exchange Rate Losses
With markets bracing for an unremarkable wage growth figure the appeal of the Pound was distinctly limited, as optimism in the domestic outlook faded.
Demand for the South African Rand picked up, meanwhile, as January’s South African inflation data bettered forecast, dipping from 4.7% to 4.4% on the year.
This suggests that the South African Reserve Bank (SARB) is more likely to leave interest rates on hold in the near future, to the benefit of ZAR exchange rates.
Update 1: Pound South African Rand (GBP/ZAR) Extends Gains Despite Weak UK Factory Growth
While UK factory growth hit a four-month low in February, in line with forecast, this failed to dent the bullish run of the Pound Sterling to South African Rand (GBP/ZAR) exchange rate today.
All in all, the details of the CBI report were not overly negative, pointing towards stronger demand and output going forward.
Even so, concerns over Brexit and the government’s lack of clarity on the matter look set to drag on sentiment amongst manufacturers going forward, to the likely detriment of the Pound.
If tomorrow’s raft of UK data also proves discouraging then the GBP/ZAR exchange rate is vulnerable to a significant reversal.
Optimism Greets Ramaphosa State of the Union Address to Pressure Pound South African Rand (GBP/ZAR) Exchange Rate
Confidence in the outlook of the South African economy has dramatically improved since former president Jacob Zuma stepped down, leaving the Pound Sterling to South African Rand (GBP/ZAR) exchange rate on a weaker footing.
Markets are generally optimistic that newly sworn-in President Cyril Ramaphosa will be able to revitalise the ailing economy and undo some of the damage caused by Zuma.
Ramaphosa’s first State of the Nation address was positively received by investors, with markets welcoming the prospect of meaningful change and progress.
Even though it remains to be seen whether the new president can actually deliver on his positive message this was enough to shore up the Rand (ZAR) at the start of the week.
Pound (GBP) Exchange Rates Strengthen as Leaked EU Report Points Toward ‘Privileged’ Single Market Access
A leaked report in Business Insider prompted the GBP/ZAR exchange rate to rally sharply today, however, as anxiety over Brexit eased somewhat.
With the European Parliament reported to be developing a plan to grant the UK ‘privileged’ single market access in the wake of Brexit the appeal of the Pound (GBP) naturally improved.
As this suggests some softening in the EU’s position heading into the next round of Brexit negotiations, investors were encouraged to bet on the prospect of a less severe break between the UK and EU.
However, as the veracity of the report has yet to be confirmed the GBP/ZAR exchange rate may not be able to hold onto these gains for long.
Speculation over the likely outcome of the next round of Brexit negotiations may well put the Pound under renewed pressure in the days ahead.
BoE Commentary Forecast to Provoke GBP/ZAR Exchange Rate Movement
Comments from Bank of England (BoE) policymakers could drive some additional volatility for the GBP/ZAR exchange rate on Wednesday.
Any indications that members of the Monetary Policy Committee (MPC) are prepared to vote for an increase in interest rates in the near future may boost the Pound (GBP) further.
On the other hand, if policymakers opt to take a less optimistic view of the domestic outlook this could leave Pound exchange rates vulnerable to fresh downside pressure.
Focus will also fall on the latest UK average weekly earnings data and second estimate of the fourth quarter gross domestic product this week.
With wage growth forecast to hold steady on the year at 2.4%, though, this is unlikely to offer the BoE or the Pound any particular cause for confidence.
Fresh South African Rand (ZAR) Exchange Rate Gains Forecast on Falling SA Inflation
As forecasts point towards a slight dip in South African inflation on the year the GBP/ZAR exchange rate may falter.
An easing in inflationary pressure would bode relatively well for the South African economy, diminishing the prospect of the South African Reserve Bank (SARB) having to intervene further.
However, if inflation continues to push higher this could weigh heavily on the Rand (ZAR), overshadowing recent market optimism over Ramaphosa’s ability to turn the economy around.
With hopes for the new president so high this leaves ZAR exchange rates vulnerable to any sudden shift in sentiment, particularly if the wider mood of global stock markets deteriorates once again.