Foreign Currency Market Update – GBP / ZAR Update
The past seven days have seen the Pound Sterling South African Rand exchange rate remain within touching distance of the 6-week low of 17.3381 which it bounced off last week.
The latest UK inflation figures, published eight days ago, revealed that the pace of domestic price rises had dropped from 1.0% in November to a lowly 0.5% last month. The release has anchored the Pound Sterling against the other sixteen most actively traded global currencies during the intervening period. This morning’s session brought better news regarding the state of Britain’s real economy, with the publication of jobs numbers which showed that the overall level of unemployment had fallen to its lowest level for six years. The figures from the Office of National Statistics also pointed to another month where wage growth had outpaced price rises.
The South African Reserve Bank (SARB) makes its latest monetary policy announcement on 29th January and investors are pricing-in a slight chance of another cut in interest rates. Such a decision has been made somewhat less likely thanks to the ongoing downward move in the price of a barrel of crude oil; however, while the potential exists for a loosening of its policy by the SARB, support for the Rand is likely to remain subdued. If this factor contributes to a fresh shift higher for GBP ZAR, then expect the pair to track Northwards, with the psychologically-significant 18.0000 threshold providing a potential target.
In the meantime, tomorrow afternoon’s European Central Bank (ECB) announcement marks the next risk event of note for Rand-watchers. The euroland’s reserve bank is widely expected to announce that it will be injecting up to €600bn into the region’s ailing financial markets via a large scale sovereign debt purchase scheme. Such a move would amount to all-out Quantitative Easing from the ECB and would be likely to cause a significant increase in levels of global risk appetite. As an export-driven, risk-sensitive currency, the Rand would stand to benefit from such an announcement. If the fall-out sees GBP ZAR drop through last week’s nadir of 17.3381, then the next stop heading downwards for the pair would come at November’s 13-month low of 17.0828.
Heads Up
Summary of major upcoming data releases that we think may move the market.