Pound South African Rand Exchange Rate Rises as South Africa Reserve Bank Stimulus Fears Return

GBP/ZAR Exchange Rate Rises as South African Rand Traders Brace for Monetary Tightening

The Pound South African Rand (GBP/ZAR) exchange rate rose by 0.3% today, with the pairing currently trading around R18.747 as ZAR traders remain jittery ahead of Thursday’s interest rate decision from South Africa Reserve Bank (SARB).

While the SARB is generally expected to leave its interest rates unmoved at 6.5%, the bank’s statement could indicate further adjustments to monetary policy this quarter. Any dovishness from the bank would also prove ZAR-negative.

Tito Mboweni, South Africa’s Finance Minister, was deeply pessimistic about the South African economy last week, criticising the bank’s ‘structural reforms inertial’. He tweeted:

‘If you cannot effect deep structural economic reforms, then game over! Stay as you are and you are downgraded to Junk Status! The consequences are dire. Your choice.’

There are no South African economic releases due out today, leaving many South African Rand investors speculating on the SARB’s next move and the US-China ‘phase one’ trade deal, which is due to be signed off and sealed this week.

GBP/ZAR Exchange Rate Edges Higher as Boris Johnson ‘Confident’ About UK-EU Trade Deal

The Pound (GBP) edged higher against the South African Rand (ZAR) after Prime Minister Boris Johnson commented in his first sit-down interview since the general election that he was ‘very, very, very confident about getting a [trade] deal’ with the European Union.

Sterling has reacted positively to further clarity on UK-EU relations ahead of the 31st January – when the UK is due to leave the UK – as hopes of a free trade deal between the UK and the EU increase.

However, recent dovishness from the Bank of England (BoE) has capped some of the Pound’s gains today, following policymaker Gertjan Vlieghe’s comments about keeping a close eye on Britain’s economic developments ahead of the next rate decision.

Silvana Tenreyro, a member of the central bank’s Monetary Policy Committee, also added:

‘If uncertainty over the future trading arrangement or subdued global growth continue to weigh on demand, then my inclination is towards voting for a cut in Bank rate in the near term.’

GBP/ZAR Outlook: Could the South African Rand Soar on a US-China Trade Deal?

Pound (GBP) investors will be looking ahead to tomorrow’s speech from Michael Saunders, a member of the BoE’s Monetary Policy Committee. Any dovish comments about the British economy would prove GBP-negative.

Tomorrow will also see the release of December’s UK inflation data, which is expected to hold at 1.5% year-on-year.

South African Rand (ZAR) traders will be looking ahead to tomorrow’s release of South Africa’s retail sales figure for November, which is forecast to rise from 0.3% to 1.5%. As a result, we could see the ZAR/GBP exchange rate claw back some of its losses as the economic outlook shows a glimmer of recovery.

US-China trade developments will continue to drive the South African Rand this week. With Washington and Beijing due to sign off their ‘phase one’ trade deal tomorrow, we could see the risk-sensitive ZAR soar against Sterling as risk-appetite returns.

David Moore

Contact David Moore