Foreign Currency Market Update – GBP / ZAR Update
The past week has seen the Pound Sterling to South African Rand (GBP/ZAR) exchange rate climb steadily upwards, although today, the Pound has plummeted against the rallying Rand.
South African President Jacob Zuma is largely responsible for both last week’s sudden Rand devaluation and today’s abrupt uptrend across the board. On December 9th, for reasons still currently unknown, Zuma removed well-liked Nhlanhla Nene from his position as Minister of Finance and put in his place the relatively obscure David van Rooyen.
The decision was met with immediate criticism by Zuma’s own party and sent the Pound jumping up from 22.0816 to a historic high of 23.0004 in the wake of the announcement.
Today, Zuma has ostensibly bowed to pressure and replaced van Rooyen with the much more established Pravin Gordhan, who previously held the position of Minister of Finance from 2009 to 2014.
In consequence, the Rand has gained tremendously against its peers, with Pound Sterling subsequently slipping from 24.1747 to 22.8320.
For the rest of the week, Pound Sterling/South African Rand exchange rate movement may occur as a result of tomorrow’s UK Inflation Rate results for November, Wednesday’s UK ILO Unemployment Rate for the three months to the end of October, the US Federal Open Market Committee (FOMC) Interest Rate Decision (out in the evening of the same day) and Thursday’s South African annual November PPI result and the simultaneously released UK Retail Sales figures for the same month.
With the UK CPI figures, forecasts were mixed at the time of writing with an increase from -0.1% to 0.1% for the base annual figure being predicted but an opposite result being expected for the monthly printing. However, if accurate, the predicted result of the Core CPI could outweigh this by rising from 1.1% to 1.2%.
The UK Unemployment Rate is not forecast to change from the current 5.3% figure on Wednesday, but the Fed’s Interest Rate Decision has the potential to cause a dramatic amount of impact in the GBP/ZAR pairing. If the central bank historically raises the rate from 0.25% to 0.50% as forecast, the US Dollar can be expected to appreciate in value tremendously against all of its usual currency peers. This in turn will likely send the value of the Rand plummeting due to the combined strong Dollar and current low metal prices.
In the aftermath of what may be a momentous decision, Thursday will see the release of the first direct South African data of the week, the November Producer Price Index. Forecasts were positive for the annual result at the time of writing. Closing the week off around the same time will be the UK Retail Sales figures for November that were expected to slow from 3% to 2.3% at the time of writing.
Heads Up
Summary of major upcoming data releases that we think may move the market.