Demand for the Rand slumped sharply in the wake of September’s South African inflation data, which showed consumer price pressures to be stronger than forecast.
Markets were unsettled to find that inflationary pressure had risen back to 5.1% on the year, highlighting the South African Reserve Bank’s (SARB) continued struggle to remain in control of domestic price pressures.
This raised the prospect of the central bank cutting interest rates further in November, giving the GBP ZAR exchange rate a solid boost ahead of the weekend.
Easing concerns over the recent ‘deadlock’ in Brexit talks also helped bolster the appeal of the Pound, suggesting that meaningful progress could materialise in the near future.
South African Rand (ZAR) Rates Muted Ahead of Budget Speech
A similar uptick in the latest South African producer price index figures could put further downside pressure on the Rand, continuing to undermine confidence in the domestic outlook.
On the other hand, if inflationary pressure shows some signs of easing then this could offer ZAR exchange rates a degree of support, even if this would not alleviate the pressure on the SARB to ease monetary policy.
The key focus of markets this week, however, will be the maiden budget speech of South African Finance Minister Malusi Gigaba on Wednesday.
Markets may not find any particular cause for confidence here, with Gigaba showing less willingness to try and tackle the more systemic issues that may have been hampering economic growth than his predecessor.
Regardless of the nature of the budget, though, the Rand is unlikely to shake off political speculation and market jitters as December’s African National Congress conference draws closer.
Dovish BoE Comments Weigh on Pound Sterling (GBP) Exchange Rates
Comments from Bank of England (BoE) Deputy Governor Jon Cunliffe took some of the wind out of the Pound’s sails on Tuesday.
Speaking to the Western Mail, Cunliffe signalled a greater ambivalence over the prospect of a November interest rate hike, noting that when rates need to start rising remains ‘a more open question’.
As other members of the Monetary Policy Committee (MPC) have expressed some doubts over the wisdom of imminent monetary tightening, this suggests that the chances of a November move may not be as high as markets had thought.
This left GBP exchange rates biased to the downside as investors were inclined to unwind bets on such a move.
Weak UK Growth May Derail November Rate Hike and Send Pound Sterling Tumbling
The mood towards the Pound could sour further if the third quarter UK gross domestic product data fails to impress.
Forecasts point towards growth holding steady at 0.3% on the quarter which, while not overly impressive, would signal that the economy is largely shrugging off the negative impact of uncertainty and stagnant wages.
Any signs of softening within the economy could weigh heavily on the GBP ZAR exchange rate, giving the BoE further reason to reconsider whether to raise interest rates imminently.
However, if growth proves stronger than expected this is likely to encourage investors to pile back into Sterling.
Even so, GBP exchange rates look set to remain vulnerable to any fresh signs of discord within the Conservative government on the subject of Brexit for the foreseeable future.