GBP/ZAR Advances as US-China Trade Concerns Worry Markets
The Pound South African Rand (GBP/ZAR) exchange rate surged higher during last week’s session as investors were spooked by growing US-China trade tensions and shunned the riskier Rand.
This allowed GBP to push higher on the back of some impressive productivity figures from the UK, which lead to increased optimism regarding future wage growth.
However Sterling’s advance was not without its hurdles as some disappointing PMI figures pointed to a weak end to the first quarter for the UK’s private sector.
Meanwhile on the data front the Rand was pressured by the publication of South Africa’s latest Manufacturing PMI, which revealed activity in the factory sector slowed in March.
Pound (GBP) Lifted by Bullish BoE Official’s Remarks
After opening the week on a strong footing, the Pound continued to strengthen against the South African Rand on Tuesday morning following some hawkish remarks from a Bank of England (BoE) policymaker.
Speaking to Reuters, the BoE’s Ian McCafferty suggested that the bank must not ‘dally’ on implementing its next rate hike as he reflected on the recent strength of the UK labour market.
With the UK’s unemployment rate currently at its lowest levels since 1975 and wage growth finally appearing to tick higher, the BoE official was bullish in his policy outlook for the coming year.
‘It’s not wages suddenly bursting away, but it gives you a modest upside risk … We shouldn’t dally when it comes to tightening policy modestly.’
While his remarks are another indication that the BoE is targeting a May rate hike, his bullish tone also prompted speculation over the possibility of a second hike in 2018.
South African Rand (ZAR) Pressured by Market Risk Aversion
At the same time the South African Rand continues to struggle this morning as waning risk appetite sees many investors steer clear of the currency.
This follows the recent trade tensions between the US and China after Beijing reacted angrily to US tariffs on Chinese goods proposed by US President Donald Trump.
Wichard Cilliers, chief currency dealer from Treasury One said:
‘It’s a big risk-off scenario, with general sell-off of emerging markets, which are under pressure as the war of words about imposing tariffs is being exchanged between the US and China.’
GBP/ZAR Forecast: Carney Speech to Bolster Sterling?
Looking ahead the GBP/ZAR exchange rate may continue to punch higher later this week following a speech by BoE Governor, Mark Carney on Thursday.
GBP investors are hopeful that the speech will see Carney further reinforce the possibility of implementing a rate hike next month.
However the Pound could still face some losses ahead of the speech with the release of the UK’s latest industrial productions figures on Wednesday, with economists forecasting that factory output will have slowed sharply in February.
Meanwhile the South African Rand may slide further in the second half of this week as analysts expecting the figures will show domestic mining production to have slowed in February.