Pound to South African Rand (GBP/ZAR) Edges Higher as Yesterday’s Rand Rally Cools
Yesterday saw a surge in demand for the South African Rand (ZAR), causing the Pound to South African Rand (GBP/ZAR) exchange rate to touch on its worst levels in June so far. The Pound (GBP) rebounded slightly this morning but lacks the drive to mount a stronger recovery.
GBP/ZAR may be in for a second consecutive week of losses, as since opening this week at the level of R18.64 the pair has trended with a downside bias and plummeted yesterday as the Rand rallied.
GBP/ZAR shed over a third of a Rand and this morning on hopes that the South African economy would rebound, and the pair has touched R18.16.
This was the worst level for the pair in almost a month.
Pound (GBP) Exchange Rate Rebound Limited as UK Inflation Slows as Expected
The Pound (GBP) has recovered against a slightly weaker South African Rand (ZAR) today, but the British currency’s potential for gains was limited due to a lack of domestic support.
While UK political uncertainty has lessened as it becomes clearer that Boris Johnson is likely to become the next PM, concerns are that he could lead the nation towards a no-deal Brexit.
On top of this, the latest UK data has done nothing for the Pound (GBP) exchange rate outlook. Wednesday morning saw the publication of Britain’s May Consumer Price Index (CPI) report, which met expectations in all major prints.
As it met expectations though, this also meant that predicted slowdowns in inflation were confirmed. This effectively meant that any lingering chance of the Bank of England (BoE) hinting at a near-term interest rate hike have been extinguished.
According to Mike Jakeman, Senior Economist at PwC:
‘It is highly unlikely that the Bank of England will adjust interest rates when it meets tomorrow. Although it would likely prefer to tighten monetary policy, which remains extraordinarily loose, with inflation around target, economic growth crawling along and no clarity on the future path on Brexit, its hands are tied.’
If the BoE delivers a dovish interest rate decision Sterling could come under pressure and the Pound Sterling to South African Rand (GBP/ZAR) exchange rate could stumble.
South African Rand (ZAR) Exchange Rates Slip Back after Yesterday’s Surge
Investors moved into the South African Rand (ZAR) yesterday, despite lingering concerns about ongoing economic and political uncertainties.
Due to hints from South Africa’s government that it was planning additional support for embattled state-owned energy firm Eskom, market jitters subsided and the Rand surged.
The Rand also benefitted from bets that the Federal Reserve would cut interest rates and that the European Central Bank (ECB) may cut Eurozone rates too, making the high-yielding Rand more appealing.
While optimism is rising about assistance for Eskom and hopes that President Cyril Ramaphosa will address other issues at tomorrow’s State of the Nation Address, some analysts predict it may be short-lived.
For now South African Rand (GBP) exchange rates are holding onto most of yesterday’s gains, but the currency has slipped back slightly from its best levels due to ongoing uncertainty over how the Eskom issue will be handled.
Pound to South African Rand (GBP/ZAR) Exchange Rate Traders Await Federal Reserve News
The most influential news for the Pound to South African Rand (GBP/ZAR) exchange rate will be this evening’s US Federal Reserve policy decision.
It will give investors a better idea of how US monetary policy will change over the coming year and also how dovish the bank will be.
If the bank is less dovish than expected, demand for the high-yielding South African Rand (ZAR) will weaken and GBP/ZAR could recover some of this week’s losses.
On the other hand, an overly dovish Fed could lead to even further gains for the Rand.
Following the Fed decision, market attention will turn to South African President Cyril Ramaphosa’s State of the Nation Address.
This will be held tomorrow and could see updates on key South African issues like Eskom and the independence of the South African Reserve Bank.
As previously mentioned, the Pound to South African Rand (GBP/ZAR) exchange rate could also be influenced by tomorrow’s Bank of England policy decision.