Weaker South African Inflation Shores up Pound South African Rand (GBP/ZAR) Exchange Rate
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate bounced back from its weekly lows as September’s South African consumer price index data fell short of forecast.
Investors were caught off guard as the headline inflation rate eased further than anticipated, dipping from 4.3% to 4.1% on the year.
This weaker showing could put increased pressure on the South African Reserve Bank (SARB) to cut interest rates in the months ahead, leaving the South African Rand (ZAR) exposed to selling pressure.
With inflation still sitting comfortably within the SARB’s 3-6% target range, though, there is a chance that policymakers could opt to leave monetary policy on hold for longer in the face of deteriorating global conditions.
Rejection of Johnson’s Brexit Timetable Dents Pound Sterling (GBP)
Support for Pound Sterling (GBP), meanwhile, generally weakened after MPs voted down Boris Johnson’s proposed timetable for passing his withdrawal agreement.
While the risk of a no-deal Brexit scenario has continued to decline the dismissal of Johnson’s planned rapid turnaround increased the likelihood of a fresh delay to the current Brexit deadline.
With the government appearing on course to call a general election, in order to shore up support for its plan, a fresh bout of political uncertainty seems to be in store for the UK.
Given the signs of slowdown that the UK economy has already shown the prospect of further disruption weighed heavily on GBP exchange rates.
GBP/ZAR Exchange Rate Volatility Expected on Brexit Deadline Extension
If the EU grants the UK a fresh extension of the Brexit deadline this is likely to provoke fresh volatility for the GBP/ZAR exchange rate.
Although a delay would further limit the odds of the UK crashing out of the EU without a deal this could still weigh heavily on investor sentiment.
As long as economic activity and business confidence remain under pressure in anticipation of Brexit the potential for Pound Sterling gains seems limited.
If the government pushes for an imminent general election this may also weigh on GBP exchange rates in the near term.
However, an improvement in Thursday’s BBA mortgage approvals report could help to put a floor under the Pound as a resilient housing market would ease concerns over the wider economic outlook.
US-China Trade Progress Forecast to Boost South African Rand
Hopes of fresh progress towards a new US-China trade agreement may encourage fresh gains for the South African Rand over the coming days.
As long as both sides continue to display signs of optimism over the prospect of a trade deal a sense of market risk appetite is likely to support ZAR exchange rates.
Even so, growing anxiety over the outlook of the South African economy could still put a dampener on the Rand.
Mounting expectations ahead of next week’s mini-budget may drag on ZAR exchange rates, as markets remain cautious over the potential for a further loss of domestic momentum.
Worries over the health of state power utility Eskom could also offer a boost to the GBP/ZAR exchange rate.