Jump in Monthly SA Inflation Rate Lifts Pound South African Rand (GBP/ZAR) Exchange Rate
A sharp uptick in the monthly South African inflation rate kept the Pound Sterling to South African Rand (GBP/ZAR) exchange rate on a positive footing this morning.
With signs pointing towards increasing inflationary pressure within the South African economy the chances of imminent South African Reserve Bank (SARB) action picked up.
Although governments around the world unveiled significant fiscal stimulus measures overnight this was not enough to give the South African Rand (ZAR) any particular degree of reassurance.
Markets remain gripped by anxiety over the likely economic fallout of the Covid-19 pandemic, with South Africa looking particularly vulnerable to a fresh slowdown.
With the South African economy already in a state of recession the possibility of a deeper decline left ZAR exchange rates on a weaker footing.
Promise of UK Fiscal Stimulus Offers Pound Sterling Boost
After Chancellor Rishi Sunak pledged to do ‘whatever it takes’ to support the UK economy through its current crisis the mood towards Pound Sterling (GBP) saw some improvement.
The unveiled £350 billion package of fiscal stimulus helped to temporarily ease investor anxiety over the economic outlook, lifting the GBP/ZAR exchange rate.
Hopes that the government could take further action in the days ahead also helped to keep a floor under the Pound even as fresh business warnings over the impact of Covid-19 continued to emerge.
While it remains to be seen whether the announced measures could sufficiently insulate the UK economy GBP exchange rates still capitalised on the initial boost in optimism.
South African Rand Vulnerable to Fresh Downturn in Consumer Spending
January’s South African retail sales data could put a fresh dampener on the Rand today, meanwhile, if consumer spending shows another monthly decline.
After the significant -3.1% drop seen in December there are hopes for a modest rebound in consumer activity at the start of the year.
However, if sales continued to slide in the face of global trade tensions and economic anxiety this could give investors further incentive to sell out of the South African Rand.
Mounting anticipation ahead of tomorrow’s SARB interest rate decision may also keep ZAR exchange rates under pressure, with markets widely anticipating a rate cut.
UK Recession Fears Set to Limit GBP/ZAR Exchange Rate Upside
Worries over the underlying health of the UK economy may see the GBP/ZAR exchange rate struggle to hold onto its gains ahead of the weekend.
As long as UK businesses continue to sound the alarm over the impact of the Covid-19 disruption the risk of a weak first quarter growth rate is likely to linger.
Fears of the UK slipping into a state of recession in the first half of 2020 may well limit the upside potential of GBP exchange rates for the foreseeable future.
Even so, if the government unveils further measures to support both businesses and employees this could encourage the Pound to make some renewed gains against its rivals.