Foreign Currency Market Update – GBP / ZAR Update
Over the past week the Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending within the range of 20.1240 to 20.7082.
With the US Dollar fluctuating over the past week in response to divergent opinions with regards to the timing of a Federal Reserve benchmark interest rate hike, the GBP/ZAR exchange rate has seen considerable volatility. This is because a Fed rate hike would be negative for the emerging-market Rand, but positive for the Pound given the general opinion that the Bank of England (BoE) will not hike the benchmark interest rate ahead of the Fed.
Although uncertainties regarding Fed rate hike bets have caused the Rand to fluctuate, a general appreciation can be linked to tracking Euro gains. The weak US Dollar caused the shared currency to advance thanks to negative correlation and the Euro has advanced by around 10 cents against the US asset over the past month. However, many futures traders believe the Euro will soften after Thursday’s European Central Bank (ECB) interest rate decision, with expectations that President Mario Draghi will talk down the single currency. This could cause the South African Rand to decline.
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending in the region of 20.4020 during Tuesday’s European session.
On Tuesday the Pound Sterling to South African Rand (GBP/ZAR) exchange rate declined by around -0.7% in response to rising gold prices. The combination of US Dollar weakness and seasonal demand has seen gold rise by 0.3%. However, diamond and platinum prices remain soft which could weigh on Rand futures. Platinum is likely to continue trending lower after the Volkswagen scandal saw demand falter given that platinum is a key product in car engines. Meanwhile, the Pound cooled versus its major peers on Tuesday as chaos in the British steel industry is likely to see 1 in 6 workers lose their jobs. The influx of steel from the world’s second-largest economy has weakened prices to such an extent that British exports can no longer compete. Additionally, domestic demand for Chinese steel has soared as builders seek the cheapest materials.
Looking ahead, the GBP/ZAR exchange rate is likely to see fluctuations but maintain a weak position. With gold prices continuing to rise and with mounting uncertainty regarding the timing of a Fed rate hike and therefore a BoE rate hike, the Pound is unlikely to make any notable gains over the coming week. The Rand has the potential to surge, however, should the US asset remain weak. With that being said, there is the potential for a significant South African Rand downtrend following the ECB rate decision if Draghi opts to attempt to devalue the common currency. Wednesday is likely to see Rand volatility with the publication of domestic Retail Sales and Inflation data.
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending within the range of 20.3600 to 20.5690 during Tuesday’s European session.
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