Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Weekly Update: How Long Will Rand Weakness Persist?

Pound to South African Rand Exchange Rate (GBP/ZAR) Continues to Climb Despite UK Economic Concerns

Broad weakness in the South African Rand (ZAR), caused by market hesitance to buy risky emerging market currencies in recent weeks, has made it easier for the Pound Sterling to South African Rand (GBP/ZAR) exchange rate to advance this month.

Last week, GBP/ZAR put in solid gains despite Brexit concerns and Bank of England (BoE) uncertainties weighing on the Pound (GBP). The pair climbed from the interbank level of 16.95 to 17.54 throughout the week.

Since markets opened on Monday, GBP/ZAR has continued to see modest gains despite disappointing UK data. At the time of writing on Tuesday, GBP/ZAR was trending near the interbank level of 17.62.

The primary reason for GBP/ZAR gains has been broad Rand weakness, on shifting market sentiment towards central bank policy and US trade policy news.

Pound (GBP) Exchange Rates Supported Slightly by Mixed UK Job Market Report

Demand for the Pound (GBP) actually improved a little on Tuesday, despite Britain’s latest job market results not doing much to impress analysts.

Britain’s April unemployment rate remained at 4.2% as expected, but some investors were pleased by news that the employment change figure had only slowed from 197k to 146k, rather than the forecast 110k.

To some investors, it was a sign that Britain’s job market continued to strengthen and it boosted hopes that economic activity would improve in the coming months.

However, analysts were more concerned by news that Britain’s wage growth unexpectedly slowed. Wages including bonuses slowed from 2.6% to 2.5%, while the figure excluding wages unexpectedly slipped from 2.9% to 2.8%.

According to John Hawksworth, Chief Economist at PwC:

‘Overall, this new data does not significantly alter the big picture of a modestly growing economy combining relatively strong growth in jobs with weaker growth in productivity per worker and, linked to this, only modest real pay growth.’

South African Rand (ZAR) Exchange Rates Struggle amid Improving Global Outlook

Despite hopes that South Africa’s economic outlook is gradually improving, the South African Rand (ZAR) has been under significant pressure due to several factors both globally and at home.

The broad strength of the US Dollar (USD) and rising market expectation that major Central Banks are heading towards tightening monetary policy has left investors less hungry for risky emerging market currencies like the Rand.

With emerging market demand weak, the Rand has been tumbling – especially as recent South Africa data has been unimpressive.

Last week saw the publication of a concerning South African Gross Domestic Product (GDP) report, which indicated that SA’s economy had failed to maintain the solid pace of growth seen last year.

Pound to South African Rand (GBP/ZAR) Forecast: UK Inflation Report Ahead

Major UK data will be published throughout this week, which are likely to have an influence on Bank of England (BoE) interest rate hike bets and the Pound to South African Rand (GBP/ZAR) exchange rate.

Perhaps the week’s most influential report will be May’s UK inflation rate, due on Wednesday.

UK inflation is forecast to have risen from 2.4% to 2.5% year-on-year, but if the data falls short of expectations it could worsen concerns about UK price pressures and Bank of England bets could fall.

Britain’s May retail sales results, due on Thursday, could also prove influential as they will give investors a better idea of whether or not UK consumer activity boosted economic performance last month.

If UK retail sales disappoint too, GBP/ZAR may still fall this week despite the Rand’s broad weakness.

Wednesday’s South African retail sales results or Thursday’s mining and business confidence reports could offer the Rand some support if they impress.

However, if global sentiment towards risk-correlated emerging market currencies remains weak, the Pound to South African Rand (GBP/ZAR) exchange rate’s losses are likely to be limited.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard