Pound South African Rand (GBP/ZAR) Exchange Rate Falters as UK Inflation Dips
UK inflation eased back to 3% on the year in December, leaving the Pound to South African Rand (GBP/ZAR) exchange rate under significant pressure.
Although this easing in inflationary pressure was in line with forecasts, the dip still disappointed investors who now see less chance of the Bank of England (BoE) raising interest rates in the near future.
With the consumer price index moving back towards the BoE’s 2% target the incentive to hike interest rates again diminishes, to the detriment of the Pound (GBP).
For consumers the impact of the dip in inflation is still likely to be limited, as wage growth continues to lag significantly behind price pressures.
As a result, and in spite of the mixed nature of the recent South African data, the GBP/ZAR exchange rate slumped on Tuesday morning.
Gold Output Contraction Limits South African Rand (ZAR) Appeal
Even though South African gold production contracted by a worrying -8.3% on the year in November the GBP/ZAR exchange rate was unable to capitalise on this.
A fresh monthly contraction in mining production added to worries over the health of the South African economy, highlighting its continued state of vulnerability.
While political concerns have eased somewhat in the wake of Cyril Ramaphosa winning the leadership of the ruling African National Congress (ANC) the outlook for the domestic economy remains uncertain.
It is yet to be seen whether Ramaphosa will offer South Africa the change that markets are hoping for, with the influence of incumbent President Jacob Zuma persisting.
Nevertheless, the relative weakness of the US Dollar (USD) in recent days has helped to put a floor under ZAR exchange rates, at least for the time being.
GBP/ZAR Exchange Rate Rally Possible on Forecast Increase in UK Retail Sales
Friday’s UK retail sales figures could offer the GBP/ZAR exchange rate a rallying point, providing consumer spending is found to have picked up over the Christmas period.
However, forecasts point towards a rather mixed bag of results, with sales thought to have picked up on the year yet contracted on the month.
This could limit the potential for any GBP exchange rate bullishness, as signs of falling consumer demand are likely to dent market confidence.
Even with inflation having eased in December the ongoing wage squeeze remains a cause for concern, potentially weighing down the Pound and costing the economy momentum heading into 2018.
ZAR Exchange Rates Jitters Likely as SARB Forecast to Hold Steady
The GBP/ZAR exchange rate is likely to recover some ground as anticipation builds over the South African Reserve Bank (SARB) interest rate decision on Thursday.
No change is expected from policymakers at this juncture, but investors are still listening keenly for any clues regarding the policy outlook of the central bank.
If there is any indication an interest rate cut could be on the cards in the near future ZAR exchange rates are likely to see some volatility.
With global interest rates largely moving in the other direction, the potential for further monetary loosening would offer little in the way of encouragement for the Rand, even if such a move stimulates greater economic growth.
Another decline in South African consumer confidence in the third quarter index could equally put pressure on the Rand, highlighting the persistent challenges faced by the domestic economy.