Pound to South African (GBP/ZAR) Exchange Rate Forecast: Underwhelming UK Inflation to Extend Losses

Update: Pound to South African Rand (GBP/ZAR) Exchange Rate Fails to Benefit From Risk Averse Trading

While market risk appetite remained largely limited on Tuesday the Pound to South African Rand (GBP/ZAR) exchange rate came under continued pressure.

Demand for the South African Rand (ZAR) remained well supported by the latest bout of optimism over the domestic economic outlook and President Cyril Ramaphosa’s plans for the country.

Even a fresh warning from the IMF over the future of the global trade system was not enough to boost the GBP/ZAR exchange rate.

Pound South African Rand (GBP/ZAR) Exchange Rate Falters in Spite of Return to UK Wage Growth

As February’s UK average weekly earnings figure fell short of forecast this took some of the wind out of the Pound to South African Rand (GBP/ZAR) exchange rate’s sails.

Demand for the Pound (GBP) largely diminished in the wake of this latest raft of UK labour market data, even though wage growth finally overtook inflation.

Even without accelerating further on the year, wage growth of 2.8% was still enough to edge ahead of February’s inflation reading of 2.7%.

However, this failed to offer Pound exchange rates much support on Tuesday morning, with households still under pressure after a year of squeezed wages.

With the unemployment rate bettering the forecast to fall to 4.2% there are some concerns that this is not doing enough to push up domestic wages, to the detriment of the economic outlook.

This relative disappointment prompted the GBP/ZAR exchange rate to reverse its earlier gains, retreating from its recent multi-month high.

Pound South African Rand (GBP/ZAR) Exchange Rate Weighed Down by Ramaphosa Investment Drive

As South African President Cyril Ramaphosa announced a high-profile investment drive the Pound to South African Rand (GBP/ZAR) exchange rate came under additional pressure.

Ramaphosa is deploying a team of envoys with the aim of luring in $100 billion of investment into South Africa over the next five years. Following this announcement the appeal of the South African Rand (ZAR) naturally picked up.

Markets remain optimistic about the prospects of the South African economy under Ramaphosa’s leadership, limiting the downside potential of ZAR exchange rates.

Even though markets have been in a somewhat jittery mood in recent days, thanks to mounting geopolitical tensions over Syria, this has failed to dampen the appeal of the Rand.

Forecast: Higher SA Inflation to Provoke GBP/ZAR Exchange Rate Volatility

South African inflation data could put further downside pressure on the Pound to South African Rand (GBP/ZAR) exchange rate this week.

Forecasts point towards a fresh uptick in inflationary pressure on the year, with the headline figure expected to have edged higher to 4.1% in March.

This could give the South African Reserve Bank (SARB) some cause for unease, reducing the odds of any additional interest rate cuts in the near future.

Even so, with inflation still forecast to sit comfortably within the SARB’s target range for some time to come even a stronger showing is unlikely to diminish confidence in the domestic outlook.

As a result, ZAR exchange rates could find a fresh rallying point on the back of the data, especially if the general sense of market risk appetite picks up further.

Fresh Pound to South African Rand (GBP/ZAR) Exchange Rate Gains Unlikely on UK Inflation Data

Meanwhile, the Pound to South African Rand (GBP/ZAR) exchange rate looks vulnerable ahead of the latest UK inflation data.

While forecasts point towards an improvement in the core consumer price index this may not be enough to boost GBP exchange rates.

As markets have already largely priced in the prospect of a May Bank of England (BoE) interest rate hike the upside potential of the Pound looks limited at this juncture.

Anything short of a significant downside surprise is unlikely to dent bets of an imminent rate hike, though, limiting any potential Pound to South African Rand (GBP/ZAR) exchange rate softness.

Hannah Wilson

Contact Hannah Wilson