Pound to South African Rand (GBP/ZAR) Exchange Rate to Extend Bullish Run as Risk Appetite Declines

Update: Rising Fed Interest Rate Hike Expectations Boost Pound South African Rand (GBP/ZAR) Exchange Rate

A solid uptick in US advance retail sales encouraged the Pound to South African Rand (GBP/ZAR) exchange rate to strengthen, benefitting from increased market risk aversion.

With the Federal Reserve looking set to pursue a more aggressive pace of monetary tightening over the coming year the mood towards the risk-sensitive South African Rand (ZAR) deteriorated further.

Even though confidence in the Pound (GBP) remained somewhat limited this was not enough to prevent further gains for the GBP/ZAR exchange rate.

Pound South African Rand (GBP/ZAR) Exchange Rate Pushes Higher on Risk Aversion

Shifting market risk sentiment has provoked volatility for the Pound to South African Rand (GBP/ZAR) exchange rate in recent days.

A stronger US Dollar (USD) has weighed heavily on South African Rand (ZAR) exchange rates, with investors encouraged to favour the safe-haven currency over its risk-sensitive rival.

Thursday’s disappointing raft of South African mining and manufacturing production figures also weighed heavily on the Rand, highlighting the continued weakness of the domestic economy.

Even so, the dovish nature of the Bank of England’s (BoE) May policy meeting and Inflation Report prevented the GBP/ZAR exchange rate from capitalising on this softer data.

As confidence in the US Dollar also diminished ahead of the weekend, dented by underwhelming inflation data, the mood towards the South African Rand improved.

Dip in UK Wage Growth Fails to Limit GBP/ZAR Exchange Rate Gains

The Pound to South African Rand (GBP/ZAR) exchange rate surged higher on Tuesday, even in the wake of some mixed UK labour market and wage data.

As growth in average weekly earnings eased from 2.8% to 2.6% on the year in the first quarter the mood towards the Pound (GBP) soured.

While wages are outpacing inflation once again investors had hoped to see signs of a fresh acceleration, given the relative tightness of the UK labour market.

This could give the BoE incentive to leave interest rates on hold for longer, with growth in real wages offering little in the way of inflationary pressure.

However, this weak showing failed to weigh down the GBP/ZAR exchange rate as market risk appetite generally deteriorated in response to geopolitical tensions.

Solid SA Retail Sales Likely to Dent Pound South African Rand (GBP/ZAR) Exchange Rate

Some pressure could be in store for the Pound to South African Rand (GBP/ZAR) exchange rate on Wednesday with the release of the latest South African retail sales figures.

Another solid uptick in sales would give investors fresh cause for confidence in the South African economy, indicating that consumer sentiment remains solid.

This could offer a boost to ZAR exchange rates, even though doubts remain over the outlook of the wider economy.

On the other hand, any fresh signs of weakening consumer spending could weigh heavily on the South African Rand.

GBP/ZAR Exchange Rate Forecast to Come Under Pressure Ahead of UK Inflation Data

With no fresh UK data due for release during the remainder of the week the Pound to South African Rand (GBP/ZAR) exchange rate could struggle to hold onto a stronger footing.

Persistent uncertainty surrounding the UK government’s position on Brexit is likely to limit the upside potential of GBP exchange rates for some time to come.

Continued disagreement within the Cabinet on the shape of the UK’s future relationship with the EU does little to improve the appeal of the Pound.

As anticipation mounts for next week’s UK consumer price index data GBP exchange rates could turn increasingly jittery.

Unless markets see reason to bet on the prospect of a higher inflationary reading the Pound to South African Rand (ZAR) exchange rate may return to a weaker footing.

Hannah Wilson

Contact Hannah Wilson