Over the past seven days the Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending within the range of 22.9994 to 23.7001.
South African Rand Fluctuates on Federal Reserve Rate Hike Bets
Market sentiment and Federal Reserve rate hike projections have been the principle drivers behind Rand movement since the turn of the year. Last week saw a brief ZAR appreciation as risk appetite improved in the face of record amounts of liquidity pumped into China’s markets from the People’s Bank of China (PBoC). However, South African Rand gains were short-lived after positive US unemployment data on Friday solidified hopes of a near-term overnight cash rate increase from the Federal Reserve. That said, a slew of disappointing US data publications and weakening global economic conditions have significantly reduced bets regarding the number of Fed rate hikes likely to occur in 2016.
Pound Struggled as European Stocks Extended Rout
While the Rand fluctuated, the British Pound continued to suffer as it tracked European stock volatility. The early stages of last week saw Sterling depreciate across the board as weak demand continued to overshadow domestic data. The Pound briefly firmed mid-week after services data showed output in January exceeded expectations, but with the BoE delivering a decidedly dovish policy statement on ‘Super Thursday’ gains were short lived.
GBP/ZAR Exchange Rate Edges Higher after UK Trade Deficit Narrows
On Tuesday the Pound Sterling to South African Rand (GBP/ZAR) exchange rate edged fractionally higher. This is partly the result of British data revealing a greater-than-forecast narrowing in the trade deficit and partly down to dampened demand for risk-correlated assets. A massive drop in Japanese equity values, combined with improved Fed rate hike bets following Friday’s unemployment data, has seen demand for emerging market assets reduced significantly. US Dollar demand wavered somewhat on Tuesday, however, with Fed Chairwoman Janet Yellen due to make a speech later in the week. If Yellen attempts to talk down the Dollar with a dovish policy outlook the Rand is likely to advance.
Fed Rate Hike Bets, Stocks Fluctuations in Focus
Looking ahead there are a number of ecostats with the potential to provoke changes for the GBP/ZAR exchange rate over the coming week. However, domestic data may take a back seat as market sentiment and Federal Reserve bets continue to drive Rand movement. That said, with South Africa’s President Zuma once again dominating headlines amid accusations of corruption, political uncertainty may also play a crucial role in Rand movement. Rand investors will be looking ahead to Thursday and the release of domestic Mining/Manufacturing Production reports and a State of the Nation speech from President Zuma.
Of the UK data due over the coming seven days, next Tuesday’s Consumer Price Index will be the most significant. Low inflation has been one of the biggest stumbling blocks preventing the Bank of England (BoE) from raising the benchmark interest rate. If January’s Consumer Prices are shown to have improved, there is a high chance that the Pound will appreciate.
Heads Up
Summary of major upcoming data releases that we think may move the market.