Foreign Currency Market Update – GBP / ZAR Update
The South African Rand spent much of the week trading in a softer position against the Pound as Bank of England (BoE) interest rate hike expectations lent the British currency support.
Comments issued by BoE Governor Mark Carney helped Sterling achieve a fresh seven-year high against the Euro and trend in a stronger position against peers like the South African Rand, with the GBP/ZAR pairing achieving a high of 18.6553 on the 10th.
The South African Rand was also trading in the region of a 13-year low against the US Dollar on Tuesday as the previous week’s impressive US Non-Farm Payrolls figure bolstered Federal Reserve rate hike bets.
Additionally, the ongoing Greek bailout negotiations, the European Central Bank’s introduction of quantitative easing and domestic energy supply concerns were weighing on the South African asset.
However, the Pound pared gains against the Rand after UK industrial production data fell short of forecasts.
Profit taking and Carney’s intimations that adjustments to borrowing costs would be even more gradual than previously anticipated also halted the GBP/ZAR upswing and the pairing returned to trending in the region of 18.3258 on Thursday.
During a speech in Sheffield, Carney asserted that the strength of the Pound could keep inflation low.
He commented; ‘The bottom line is that there is a risk that the combination of persistently low global inflation and the strength of Sterling could weigh on prices here for some time.’
Carney then added; ‘It may be appropriate to take into account persistent external deflationary forces arising from the combination of continued foreign low inflation and the protracted effects of Sterling’s strength on the prices facing UK consumers if those forces were to intensify.’
That being said, declines against the Rand were limited as South Africa published less-than-impressive Mining and Manufacturing Production reports.
Mining production was shown to have fallen by -5.4% on the month in January following a positively revised gain of 0.2% in December.
This took the annual figure from a revised -3.0% to -4.7%.
Similarly, manufacturing production was down -1.5% on the month and -2.3% on the year – defying forecasts for an annual figure of 0.43%.
The poor domestic ecostats left the GBP/ZAR pairing trending in a narrow range. The Pound may gain on its emerging-market peer before the weekend however if the UK’s Construction Output report shows the improvement expected.
Economists are envisaging month-on-month expansion of 1.3% and annual growth of 2.1%.
Next week the Pound Sterling to South African Rand (GBP/ZAR) exchange rate could experience volatility as a result of the BoE’s latest meeting minutes.
If the minutes are dovish in tone, the Pound may reverse its recent uptrend. Similarly, disappointing UK employment data would also drive the British currency lower.
In terms of South African figures, the reports to look out for in the week ahead include the nation’s current account and inflation figures. Consumer price gains are believed to have accelerated in February.
Heads Up
Summary of major upcoming data releases that we think may move the market.