Foreign Currency Market Update – GBP / ZAR Update
During the last five trading sessions the Pound Sterling to South African Rand exchange rate has recovered from a low of 20.5490 to achieve a high of 21.1636.
The Rand posted widespread gains at the close of last week as the Federal Open Market Committee’s (FOMC) decision to leave interest rates on hold and offer up a comparatively dovish policy statement saw demand for higher-risk and emerging-market assets spike.
However, the GBP/ZAR pairing was able to return to trending in the region of ten-year highs after the weekend as comments from the Bank of England’s (BoE) Deputy Governor gave Sterling a boost. The central bank’s chief economist may have recently inferred that borrowing costs are as likely to fall as rise but official Jon Cunliffe painted a more optimistic picture of the UK’s economic health and the BoE’s policy outlook.
Meanwhile, the Rand snapped its recent run of gains against peers like the Pound and US Dollar after a Federal Reserve official intimated that hopes for a 2015 interest rate adjustment from the Federal Reserve shouldn’t be entirely abandoned. The currency also came under pressure ahead of the South African Reserve Bank’s interest rate decision as the extent of contraction in China’s manufacturing sector was shown to be worse-than-forecast in September.
While the Rand’s decline against the Pound was tempered by the impact of disappointing UK public finance figures, the Rand posted its most extensive decline against the US Dollar for nearly three weeks amid bets the central bank would leave borrowing costs on hold.
Early on Wednesday the Rand fluctuated as South Africa’s latest inflation data confirmed that both the core and non-core annual rates declined in August, with the core measure easing from 5.4% to 5.3% and the non-core gauge dipping from 5% to 4.6%.
Shortly after the SARB left the repo rate at 6%, as forecast. Factors behind the decision included last week’s inaction from the Federal Reserve, domestic economic weakness and global growth fears. The central bank’s Governor asserted that policymakers stand ready to take action if the inflation outlook deteriorates, adding; ‘the next Monetary Policy Committee is in November so we will wait until then to see if we will increase or not. The MPC did move in July without the Fed – we watch what happens in the world and we always look at what is the impact on SA economy in terms of growth and inflation outlook.’
After the decision the Rand remained around the day’s opening levels against the Pound (trending just below 21.0000) but weakened against the US Dollar. With the UK’s economic docket remarkably sparse this week and no further influential South African releases to take note of, any GBP/ZAR fluctuations will be in response to US news and its impact on Fed rate hike projections.
Next week the UK data most likely to impact Pound to Rand trading includes the nation’s GfK Consumer Confidence index, Manufacturing/Construction PMI’s and final second quarter growth estimates. Any reports which keep Q1 BoE rate hike hopes alive will be Pound supportive. In terms of ecostats from South Africa the main market-movers include the Barclays Manufacturing PMI and Consumer Confidence for the third quarter.
Heads Up
Summary of major upcoming data releases that we think may move the market.