South African Rand Today: Late Boost for GBP ZAR Exchange Rate on Interest Rate Comments

A sluggish week for the Pound Sterling South African Rand exchange rate ended with sharp gains.

However, while GBP ZAR shot up to around 18.90 by the weekend, those gains were quickly shed this week.

Hammond’s Middle-of-the-Road Budget Keep Pound Sterling (GBP) Exchange Rates on Weak Form

Disappointing government borrowing figures on Tuesday weighed on the GBP ZAR exchange rate, with markets perturbed to see the deficit had widened from -£5 billion to -£8 billion, instead of the expected -£7.1 billion.

This soured market appetite for Sterling ahead of Wednesday’s Budget delivery by Chancellor Philip Hammond, which turned out to be something of a non-event.

Hammond’s new spending plans contained little of interest to markets, although economic forecasts released by the Office for Budget Responsibility (OBR) kept GBP ZAR in negative territory.

The OBR slashed its forecasts for wages and productivity for the next five years, suggesting it could be a long time before the UK economy returns to pre-crisis levels, which lessens the odds of tighter monetary policy from the Bank of England (BoE) any time soon.

A second estimate of UK GDP during the third quarter on Thursday failed to provide impetus for the Pound, which spent the day in a narrow range against the Rand.

While the headline figures reassuringly printed in line with previous estimates, the underlying index of services and business investment figures weakened.

However, GBP ZAR shot higher on Friday after Monetary Policy Committee (MPC) member Silvana Tenreyro cautioned that markets were underprepared for the possibility that Brexit forced interest rates higher rather than lower.

Support for Rand (ZAR) despite Inflation Slowdown as SARB Holds Rates Instead of Cutting

The South African data calendar remained empty until Wednesday, when inflation data kept the Rand soft.

The inflation rate weakened from 0.5% month-on-month to 0.3% and slowed from 5.1% to 4.8% year-on-year.

At seven months now, this marks the longest streak of remaining below the South African Reserve Bank’s (SARB) upper band target of 6% in nearly two years.

Core inflation inched lower from 4.6% to 4.5% – the lowest level seen since July 2012.

While falling inflation is often a cause for central banks to cut interest rates – a prospect that usually weakens a currency – economists believed that the SARB was unlikely to loosen policy on Thursday.

Those expectations proved correct, as the central bank indeed opted to hold rates steady at 6.75%.

GBP ZAR Exchange Rate Volatility Forecast on UK Consumer Credit and SA Business Credit Data

Tomorrow’s UK consumer credit and mortgage approvals data could be something of a double-edged sword.

With growing evidence that households have only been able to maintain their current level of spending by borrowing more or raiding their savings, rising consumer credit is likely to cause alarm.

However, falling credit and mortgage applications would point to a continued weakening of consumer sentiment, which bodes ill for the UK’s services-lead economy.

Thursday’s GfK consumer confidence and Lloyds business barometer could further add to the gloomy economic outlook, unless they show a strong improvement.

Friday begins the next cycle of PMI releases, with the Markit manufacturing PMI for November set for release and forecast to creep higher to 56.5 from 56.3.

The construction index follows on Monday and the services and composite readings are due on Tuesday.

Data Affecting the GBP/ZAR Forecast This Week

29th November 07.00 ZAR Private Sector Credit (YoY) (OCT)

29th November 11.00 ZAR Business Confidence Q4 (YoY) (OCT)

29th November 09:30 GBP Net Consumer Credit (OCT)

30th November 00:01 GBP GfK Consumer Confidence (NOV)

30th November 13.00 ZAR Balance of Trade (OCT)

1st December 09:30 GBP Markit UK PMI Manufacturing s.a. (NOV)

1st December 10.00 ZAR ABSA Manufacturing PMI (NOV)

4th December 09:30 GBP Markit/CIPS UK Construction PMI (NOV)

5th December 09:30 GBP Markit/CIPS UK Services PMI (NOV)

5th December 09:30 GBP Markit/CIPS UK Composite PMI (NOV)

South African Rand Forecast

Private sector credit and fourth-quarter business confidence figures are expected to have mixed results, with the former improving and the latter weakening.

Thursday brings the trade balance result for October, which could weaken the South African Rand as economists expect the ZAR4 billion surplus to have given way to a –ZAR1 billion deficit.

Friday’s ABSA manufacturing PMI for November is expected to climb slightly, but still remain in contraction territory.

Tuesday will be a particularly volatile day, with the third-quarter GDP figures expected to show a strong slowdown in quarter-on-quarter growth from 2.5% to 0.9%.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard