It has been a choppy few days of trading for the Pound to South African Rand exchange rate, with both currencies rocked by respective domestic data.
South African Rand Advance Continued after S&P Ratings Hold
Even a dire performance from South Africa’s Q3 GDP figures failed to halt the GBP ZAR exchange rate decline, which started at the beginning of last week. Investor appetite for the Rand was still strong after last week’s decision by Standard & Poor’s not to downgrade South Africa’s credit rating to ‘junk’.
After clocking in at an upwardly-revised 3.5% in the second quarter, the South African economy virtually stalled in the third quarter, expanding at a rate of just 0.2%.
Thursday and Friday’s ecostats finally undermined the Rand, however, allowing GBP ZAR exchange rates to recover some losses heading into the weekend. October data showed mining and manufacturing production declined strongly on the month and the year.
Sterling was kept soft thanks to the Supreme Court hearing into the government’s ability to trigger Article 50 without the input of Parliament. Investors were confident that the government would be defeated, but the potential for the Supreme Court to grant the government a carte blanche over Brexit kept the market unsettled.
While interbank Pound Sterling to South African Rand exchange rates recovered to 17.35 by the end of trade on Friday, this was still much worse than the week’s opening of 17.55.
Above-Forecast Inflation Sees GBP ZAR Exchange Rates Rise; Investors Ignore BoE Warnings
Today, the Pound Sterling to South African Rand exchange rate is bullish following the latest UK inflation data. Inflation has actually accelerated beyond forecasts, with core inflation clocking in at 1.4% and non-core inflation printing at 1.2% – ten basis points higher than the economist consensus in both cases.
In post-referendum Britain this should have concerned the markets; the Bank of England (BoE) has already stated it will not view rising inflation as a sign that monetary policy needs to be tightened. However, two factors have changed the idea that the BoE won’t hike rates in response to consumer price growth.
Firstly, above-target inflation was expected to be caused by the weakened state of Pound Sterling following the referendum, but GBP exchange rates have posted a noticeable recovery following the volatility of the US elections. Secondly, the economic data since the Brexit vote has thus far been more positive than expected. Investors are therefore wondering if the BoE could indeed hike rates due to the inflationary outlook, boosting the GBP ZAR exchange rate.
GBP ZAR Exchange Rate Forecast; US Interest Rate Hike Could Weaken ZAR
UK wage growth data tomorrow could help the Pound trend higher, as an acceleration from 2.4% to 2.6% for earnings excluding bonuses is expected. This will help consumers fend off the negative impact of rising prices upon their incomes.
If the Federal Reserve hikes interest rates tomorrow, GBP ZAR could trend bullishly. As a commodity-correlated currency, the Rand would weaken if the US Dollar were to appreciate; commodities are priced in USD, so a stronger ‘Greenback’ lowers prices.
For this reason, tomorrow’s South African inflation rate and retail sales data could be overlooked.
The Bank of England (BoE) meets to discuss monetary policy one final time this year on Thursday. After today’s inflation data, investors will be hoping the Monetary Policy Committee (MPC) takes on a more hawkish outlook, signalling that interest rate hikes may not be as far away as initially thought.