GBP/ZAR Fluctuates on Zuma, Brexit Developments
The Pound South African Rand (GBP/ZAR) exchange rate fluctuated last week as markets reacted to a rise in political uncertainty for both currencies.
For the Rand this was driven by moves by the ruling African National Congress (ANC) to remove President Jacob Zuma and replace him with the party’s new leader Cyril Ramaphosa.
Meanwhile the Pound was driven lower by the warning from the EU’s Chief Brexit negotiator Michel Barnier as he said that a transitional Brexit deal is ‘not a given’.
This offset Sterling’s gains on Thursday after the Bank of England (BoE) hinted it was open to another interest rate hike in 2018.
Pound (GBP) Bolstered by Robust Inflation Reading
Sterling is showing a little more resilience so far this week, largely on the back of the UK’s robust Consumer Price Index (CPI) figures.
According to data published by the Office for National Statistics (ONS), the UK’s inflation rate held steady at 3% in January, beating forecasts that it would slide to 2.9%.
The strong inflation reading appeared to be largely driven by higher than expected recreational and cultural goods and services prices, which helped to offset a downturn in fuel prices.
Most importantly however, another month of strong inflation is likely to keep the pressure on the BoE to raise interest rates again this year.
Dennis de Jong, managing director at UFX.com said:
‘There is no breathing space for Mark Carney and the Bank of England who continue to battle with high inflation.
Despite many expecting the figure to drop, inflation remains at 3%, sitting way above the Bank’s 2% target.’
Many analysts think this increases the odds the BoE may deliver its next rate hike as early as May.
South African Rand (ZAR) Subdued as Investors Await Fallout of Zuma Decision
Meanwhile the South African Rand remains muted on Tuesday after the ANC formally requested President Zuma to step down earlier in the morning.
The decision to officially ‘recall’ the President comes after Zuma refused calls for him to resign earlier this year.
Despite the impasse investors are reluctant to alter their positions in ZAR at this time as Markets still await a response from the President’s office.
If Zuma again refuses to step down then he will face a vote of confidence in Parliament later this month, which observers expect him to lose.
GBP/ZAR Forecast: Will BoE Hint at Possible Rate Hike?
Looking ahead movement in the GBP/ZAR exchange rate this week is likely to be dominated by politics once again as markets await Zuma’s response to the ANC’s decision to ‘recall’ him.
Should he step down immediately it is likely to have a positive impact on the Rand on hopes that his successor will be able to start the process of implementing much-needed reforms.
Meanwhile the Pound may advance again later in the week with the release of the UK’s latest retail sales figures. Economists forecast sales will have rebounded sharply in January after falling to an 18-month low at the end of 2017.