Foreign Currency Market Update – GBP / ZAR Update
Over the past week, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate advanced from a low of 19.1705 to a high of 19.3585. The South African Rand has been stuck on a general downtrend versus its major peers over the past week in response to US Dollar strength. The ‘Greenback’ (USD) gains can be attributed to mounting speculation that the Federal Reserve will hike interest rates before 2016. The Pound has seen fluctuations over the past week amid mixed economic data results, but a general uptrend can be linked to futures traders predicting that the Bank of England (BoE) will hike the cash rate at a similar time to the Federal Reserve.
In addition to US Dollar strength, the Rand declined versus its major peers amid ongoing difficulties with South Africa’s leading energy provider, Eskom. The combination of increased demand and tired equipment has caused the energy company to load shed in order to ease stress on the aging electrical grid. These rolling blackouts have cost the South African economy significantly.
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate is currently trending in the region of 19.3500.
On Wednesday the GBP/ZAR exchange rate advanced by around 1.0%. The significant appreciation is mostly the result of Sterling strength after Bank of England (BoE) policy meeting minutes provoked speculation of a sooner-than-expected benchmark rate hike. Although the minutes showed that all nine Monetary Policy Committee (MPC) members voted in favour of holding the cash rate, several policymakers only voted against hiking amid a backdrop of uncertainty surrounding Greece. This has caused many futures traders to predict that one or more policymakers will dissent in the August interest rate decision.
The South African Rand, meanwhile, declined versus its major peers in response to US Dollar strength after US housing data produced positive results. In addition, South Africa’s inflation data missed estimates. June’s Inflation Rate came in at 4.7% on the year despite the median market forecast being 5.1%. On the month, inflation came in at 0.4%; slightly below the market consensus of 0.5%. In addition, June’s annual core inflation rate failed to meet with predictions of 5.7%, with the actual result only reaching 5.5%.
Looking ahead, there will be several influential data publications on Thursday with the potential to provoke changes for the Pound Sterling to South African Rand (GBP/ZAR) exchange rate. British retail sales data is likely to have a significant impact as traders will be assessing what impact accelerated wage growth and ultra-low interest rates have had on British sales. Perhaps of most significance for the pairing, however, will be the South African Reserve Bank (SARB) interest rate decision.
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending within the range of 19.1360 to 19.3720 during Wednesday’s European session.
Heads Up
Summary of major upcoming data releases that we think may move the market.