The Pound (GBP) has continued to trade poorly against the South African Rand (ZAR) today, following the release of inflation rate data.
This showed greater-than-expected slowdowns in year-on-year inflation for April, which unsettled Pound traders.
As economists continue to process the news, a number of forecasters have written off a ‘late-summer’ Bank of England (BoE) interest rate hike, namely in August.
Not everyone has been so cautious in their forecasting, however; Samuel Tombs of Pantheon Macroeconomics says:
‘UK inflation fell in April because data [is] collected mid-month, so didn’t capture the usual rise in transport prices around Easter this year.
‘April’s print matches the Monetary Policy Committee (MPC) forecast, and inflation looks set to rise over the summer due to oil prices.
‘An August [interest] rate hike remains likely.’
One-Year Low for UK Inflation Rate Causes GBP/ZAR Exchange Rate Losses
The Pound (GBP) has fallen against the South African Rand (ZAR) today, following the news that annual UK inflation in April slowed to a one-year low compared to March.
Pound traders haven’t entirely welcomed the news, because it reduces the chance of the Bank of England (BoE) raising interest rates in the near-future.
On the other hand, UK households will be able to benefit from reduced price pressures when buying everyday goods.
Lower Odds of BoE Interest Rate Hike Drag Pound Sterling to Rand (GBP/ZAR) Exchange Rate Down
The main factor causing Pound to Rand (GBP/ZAR) exchange rate losses today has been the worry that a UK interest rate hike is now a long way off.
Considering what today’s inflation data might mean for the Bank of England (BoE) Monetary Policy Committee (MPC), University of Liverpool Professor Costas Milas said:
‘If CPI inflation falls further in May, the [BoE] will most likely have to revise their inflation forecasts downwards which will obviously make the case for an August interest rate hike even weaker.’
Despite this, there is still a chance that inflation will pick up again in the coming months; AJ Bell Chief Investment Officer Kevin Doran has forecast:
‘The recent weakness in the Pound and the rising oil price are a concern and could quickly reverse the drop in inflation.’
South African Rand (ZAR) Rises against Pound Sterling (GBP) despite Price Pressures
On the other side of the pairing, the South African Rand (ZAR) has risen against the Pound (GBP) today mainly on Sterling weakness.
Today’s South African data has shown higher inflation rates across the board in April, which have raised concerns about consumers being struck with higher prices.
The South African Reserve Bank (SARB) has an inflation target range between 3-6%; with annual inflation at 4.5% this means that no action is expected from next week’s meeting.
Future GBP/ZAR Exchange Rate Forecast: Will Pound Sterling Recover on Rising Retail Sales?
Today’s Pound to South African Rand (GBP/ZAR) exchange rate losses could be reversed on Thursday if UK retail sales data prints as forecast.
Levels of year-on-year sales activity in April are forecast to slow, but there could still be some support if the month-on-month stats show significant growth.
March was a bad month for UK retailers, who faced disruptive snowstorms and a 6% drop in footfall on the high street.
If April’s readings show the retail sector bouncing back then the Pound could recover against the South African Rand.
Further ahead, however, Pound Sterling (GBP) could slip against the Rand (ZAR) on Friday if UK GDP growth figures reveal slowing economic activity in Q1 2018.
Second estimates are tipped to show annual and quarterly slowdowns, which could concern GBP traders because this would further lower the chances of a 2018 BoE interest rate hike.
On the other side of the pairing, future South African Rand (ZAR) exchange rate movement may be caused by any US Dollar fluctuations.
If the US Dollar drops this week because of trade-related uncertainty, the Rand could pick up and rise further against the Pound.