Pound South African Rand Exchange Rate Edges Higher as SARB Cuts Interest Rate to 6.25%

GBP/ZAR Exchange Rate Improves as South African Rand Traders Await Moody’s Rating

The Pound South African Rand (GBP/ZAR) exchange rate edged higher today, with the pairing currently trading around R18.800 after South Africa’s Reserve Bank (SARB) cut its interest rates from 6.5% to 6.25%.

The SARB’s Governor, Lesetja Kganyago, was downbeat in his assessment, commenting:

‘Monetary policy actions will continue to focus on anchoring inflation expectations near the mid-point of the inflation target range in the interest of balanced and sustainable growth. In this persistently uncertain environment, future policy decisions will continue to be highly data-dependent, sensitive to the balance of risks to the outlook, and will seek to look-through temporary price shocks’.

The South African Rand (ZAR) has weakened due to the dovish statement from the South African central bank, with investors becoming increasingly concerned that the currency could face an imminent junk-status rating from the ratings agency Moody’s.

While the ZAR should have benefited from yesterday’s signing of the ‘Phase One’ US-China trade deal, uncertainty over the longevity of the newly-forged deal between the two superpowers has left market risk-appetite diminished.

GBP/ZAR Exchange Rate Rises despite BoE Rate Cut Fears

The Pound (GBP) edged higher against the South African Rand (ZAR) despite remaining subdued against many of its competitors after yesterday’s UK inflation report for December showed a disappointing three-year low.

This has further exacerbated fears that the Bank of England (BoE) could slash its interest rates on the 30th January, leaving the UK economy faltering as it leaves the European Union on the 31st January.

Michael Saunders, one of the BoE’s rate-setters, commented:

‘Coming off the back of those weaker GDP and industrial production numbers, it does not look as though the economy was firing on all cylinders at the tail end of last year. While there may well be a Boris Bounce in the offing, I rather think the die is cast in favour of a rate cut’.

However, Brexit uncertainty continues to hold back some of the Pound’s gains, with no clear path for a UK-EU free trade deal to emerge as the UK fast approaches Brexit later on this month.

GBP/ZAR Outlook: Weakening US-China Trade Relations Could Weaken the South African Rand

Pound (GBP) investors will be awaiting tomorrow’s retail sales figure for December, which is forecast to rise from -0.6% to 0.7% month-on-month, while the year-on-year figure is expected to increase to 2.6%.

Brexit will continue to remain in focus this week, with any further indications that the UK could leave the EU without a deal later on this year weakening the GBP/ZAR exchange rate.

The South African Rand (ZAR) will continue to be driven by geopolitical developments around the US and China. Any indications that the ‘phase one’ trade deal could break down, weakening the chances of a ‘phase two’ deal, would prove negative to the risk-averse Rand.

David Moore

Contact David Moore