The Pound South African Rand exchange rate saw a minor increase over the course of last week. After spiking to 17.12 yesterday, GBP ZAR has weakened and is trading back around Friday’s closing levels of 16.90.
Supreme Court Ruling against Government on Article 50 Fails to Buoy Pound
After weeks of tense waiting over the Christmas period, the UK Supreme Court finally delivered the verdict on Article 50 investors had been waiting to hear. The eleven Justices ruled that the government could not trigger Article 50 without an act of Parliament.
This meant MPs would get a chance to debate and vote on a bill giving the government permission to begin the EU exit process. The potential for MPs to amend the bill and force Theresa May to negotiate a ‘softer’ Brexit than the one outlined in her recent speech excited investors.
However, the ruling was already priced into Sterling so when the judgement finally arrived, the Pound South African Rand exchange rate fell -1.6% on profit-taking before recovering towards the weekend.
Above-forecast GDP figures barely improved investor sentiment. While UK growth remained consistently strong at 2.2% year-on-year in the final quarter of 2016, the data once-again showed that it was the services sector that was entirely responsible for economic expansion.
Rand Outlook Weakens on Suggestion SARB Finished with Monetary Tightening Cycle
On Tuesday last week the South African Reserve Bank (SARB) held interest rates at 7%. This was widely expected, as inflation remains above the bank’s target range of 3-6%. Governor Lesetja Kganyago commented that there are still high risks to inflation, even though the Bank largely expects price growth to edge back down into the target range by the end of the year.
As such, Deputy Governor Kuben Naidoo commented;
‘The Committee retains the view that we may be near the end of the hiking cycle. However, should second round effects emerge that undermine the longer-term outlook, there may be a reassessment of this view.’
News that interest rates are unlikely to go any higher knocked the outlook for the Rand.
Pound Rand Slumps as Outlook for UK Consumer Spending Worsens
Strong consumer spending is vital if the services sector is to continue driving economic growth over the coming year. However, there are signs this activity is going to weaken. Today’s GfK confidence survey has, despite registering an against-forecast improvement to -5, revealed that households are significantly less confident about the economic outlook than they were at the beginning of 2016. Belief that now was a good time to make a major purchase also weakened.
This, coupled with the fact that consumer credit data for December came in almost -£700 million below-forecast at just over £1 billion and mortgage approvals undershot expectations by over -1,000, has significantly dented hopes that consumer spending will remain firm in the coming months.
GBP ZAR losses have been somewhat mitigated by news that producers hiked their prices for manufactured goods in December at the fastest rate in five months. This suggests increasing inflation, but with SARB seemingly reluctant to hike rates further, the outlook for the Rand was unimproved by the data.
Bank of England ‘Super Thursday’ In Focus for GBP ZAR
The biggest development on the UK data calendar this week will be ‘Super Thursday’, as the Bank of England (BoE) will release its latest inflation report alongside announcing February’s monetary policy decisions. BoE Governor Mark Carney will give a press conference following the release of the document.
Investors will be hoping for either a more subdued outlook on inflation than previously, which would help keep consumer spending strong, or suggestions the BoE is prepared to hike rates to control price growth.
Barclays manufacturing PMI on Wednesday and Standard Bank PMI on Friday will be the most important releases on the South African data calendar.