Easing South African Inflation Offers Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Boost
As the South African inflation rate weakened further than forecast in October this helped the Pound Sterling to South African Rand (GBP/ZAR) exchange rate recover some of its lost ground.
While investors had expected to see the headline inflation rate dip on the year they were still caught off guard as it eased from 4.1% to 3.7%.
This move takes the rate closer to the bottom of the South African Reserve Bank’s (SARB) target range, increasing the odds of future monetary easing.
Coupled with the latest deterioration in global market risk appetite this left the South African Rand (ZAR) on the back foot.
With the chances of an imminent trade breakthrough between the US and China looking slimmer ZAR exchange rates were exposed to additional selling pressure.
UK Political Anxiety Limits Pound Sterling Upside
In the wake of last night’s general election debate between Boris Johnson and Jeremy Corbyn the mood towards Pound Sterling (GBP) proved generally muted, however.
Markets remain wary of the possibility of the election delivering another hung parliament, in spite of early polls showing a Conservative lead.
Confidence in the underlying health of the UK economy could take a fresh blow on Thursday, meanwhile, if October’s public sector net borrowing figure deteriorates as forecast.
A widening of the budget deficit would cast fresh doubt over the economy’s resilience in the face of ongoing Brexit-based uncertainty, leaving GBP exchange rates vulnerable to fresh selling pressure.
South African Rand Under Pressure Ahead of SARB Rate Decision
The Rand looks vulnerable to further weakness ahead of tomorrow’s South African Reserve Bank (SARB) interest rate decision.
Even with no change in monetary policy expected at this stage ZAR exchange rates could weaken in response to any fresh signs of policymaker dovishness.
As long as the central bank looks set to consider further monetary loosening in the months ahead the Rand is likely to struggle against its rivals.
On the other hand, if the SARB signals a willingness to keep interest rates on hold for longer this could offer ZAR exchange rates a solid rallying point.
Lingering speculation over the state of US-China trade discussions may continue to drag on the Rand over the coming days, however.
Signs of UK Service Sector Recovery to Encourage GBP Exchange Rate Gains
Demand for the Pound could pick up ahead of the weekend if November’s UK services PMI shows an improvement on the month.
After the stagnation seen in October, investors are hoping to see evidence that the sector recovered at least a degree of its lost momentum in the last month.
Although forecasts only point towards an uptick from 50.0 to 50.2 this may still encourage the GBP/ZAR exchange rate to push higher.
As the service sector remains the primary growth engine of the UK economy any positive momentum is likely to fuel hopes of a more resilient fourth quarter gross domestic product.
Even though another month of contraction from the manufacturing sector looks likely this may not put any particular pressure on the GBP/ZAR exchange rate in the face of a service sector uptick.