Foreign Currency Market Update – GBP / ZAR Update
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate rallied by around 0.5% during Tuesday’s European session.
Over the past week the Pound Sterling to South African Rand (GBP/ZAR) exchange rate has seen significant fluctuations in response to uncertainty regarding a Federal Reserve rate hike. A recent statement from the South African Reserve Bank (SARB) warned about the risks a Fed rate increase would pose to the South African economy. This is mostly as a result of the inevitable market volatility which would follow a Fed benchmark rate rise. As an emerging-market asset, US Dollar strength usually results in Rand depreciation.
Fed opacity is also having a detrimental impact on the Pound given that most economists’ predict that the Bank of England (BoE) will hold off raising the overnight cash rate ahead of the North American central bank. However, a mixture of positive domestic data results and Euro weakness has prevented a significant Sterling depreciation, with the GBP/EUR exchange rate pushing through the 1.40 mark which was so elusive in previous weeks. A better-than-expected result from the UK Manufacturing PMI on Monday saw the British asset climb versus many of its peers, but trade has since dampened ahead of ‘Super Thursday’, during which the BoE will publish meeting minutes and the quarterly inflation report on the same day as the interest rate decision.
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending in the region of 21.3400 during Tuesday’s European session.
On Tuesday the Pound Sterling to South African Rand (GBP/ZAR) exchange rate climbed in response to weak precious metal prices. Gold prices have dropped significantly of late which can be attributed to Federal Reserve rate hike hopes. If the Fed opt to hike the benchmark rate in December, gold could decline hugely. Additional Rand losses can be linked to the fall in platinum prices which have shown a steady decline since the Volkswagen scandal surfaced. Platinum is used in VW engine parts so the emissions controversy has seen demand soften.
The Pound, meanwhile, saw quiet trade on Tuesday after the Construction PMI met estimates of a drop from 59.9 to 58.8. With so much resting on the outcome of ‘Super Thursday’, the Pound is likely to see continued subdued trade in the run-up. Although the BoE is not expected to move on rates at this juncture, the accompanying meeting minutes and the quarterly inflation report will be very likely to provoke Sterling volatility.
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending within the range of 21.1540 to 21.4030 during Tuesday’s European session.
Looking ahead, there will be several influential domestic data publications with the potential to provoke changes for the GBP/ZAR exchange rate. Wednesday will see South African Standard Bank PMI for October and the UK Services PMI for October. Given that the services sector is the key driver of British growth, the data should be of significance and could weigh on Thursday’s policy decision.
The outcome of ‘Super Thursday’ will dominate Sterling trade for the remainder of the week. Friday’s South African Foreign Reserves is the only other SA economic data publication this week, so Rand movement is likely to be dictated by US Dollar and Euro positioning, as well as precious metal prices.
Over the past week, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending within the range of 20.660 to 21.3955.
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