Pound South African Rand Exchange Rate Steady, South African Economic Developments in Focus

GBP/ZAR Exchange Rate Rangebound, South African Steady on Positive Risk Appetite

The Pound South African Rand (GBP/ZAR) exchange rate held steady today, with the pairing currently trading around R18.885 as the African National Congress (ANC) enters talks on the South African economy, leaving market movement in the ZAR little changed from the weekend.

This follows last week’s rate cut from South Africa’s Reserve Bank, which has since left South African feeling jittery as the economy continues to deteriorate.

Analysts and Reuters commented:

‘[Last week’s] relatively benign [South African] inflation readings allowed the central bank to cut its main lending rate last week, with some analysts predicting another cut will follow in the first half of the year.’

The risk-averse South African Rand (ZAR) continues to benefit from positive risk appetite following last week’s signing of the ‘phase one’ US-China trade deal.

However, as doubts begin to return over relations between Washington and Beijing, we could see the ZAR/GBP exchange rate begin to dip as traders seek out safe-haven currencies like the US Dollar and Swiss Franc instead.

GBP/ZAR Exchange Rate Steady, BoE Rate Cut Fears Hold Back Sterling

The Pound (GBP) failed to gain against the South African Rand (ZAR) as British markets remain on hold after last week’s comments from two of the Bank of England’s (BoE) policy-makers increased interest rate cut odds to around 70%.

This follow’s last week’s release of December’s retail sales which saw a considerable slump despite Christmas. As a result, this has increased the likelihood that the central bank could go ahead with an interest rate cut on 30th January.

Thomas Pugh, UK Economist at Capital Economics, commented:

‘So not a very merry Christmas for retailers… December’s outright fall in retail sales, despite a potential boost from the lateness of Black Friday, does not bode well for GDP growth in December and could nudge the Monetary Policy Committee yet closer still to cutting rates at the end of the month.’

In UK economic news, today saw the release of January’s Rightmove House Price Index, which beat forecasts and rose from -0.9% to a record-breaking 2.3% month-on-month, while the year-on-year figure rose to 2.7%. However, this failed to boost the Pound as BoE rate cut fears continue to hold back market confidence in GBP.

Miles Shipside, a Housing Market Analyst at Rightmove, commented:

‘These statistics seem to indicate that many buyers and sellers feel that the election result gives a window of stability. The housing market dislikes uncertainty, and the unsettled political outlook over the last three and a half years since the EU referendum caused some potential home-movers to hesitate.’

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

Pound traders will be looking ahead to tomorrow’s publication of November’s ILO unemployment rate report, which is expected to hold at 3.8%. Any signs of rising, however, could prove Pound-negative as the odds of a BoE rate cut rise.

Tomorrow will also see the publication of November’s UK average earnings report, with any signs of improvement, however, likely to be overshadowed by concern for the larger UK economy ahead of the 30th January BoE rate decision.

The South African Rand (ZAR) will continue to be driven by US-China trade developments this week. Any further indications of a flare-up between the world’s two largest economies would limit risk-appetite for ZAR.

David Moore

Contact David Moore