Signs of Weaker SA Inflation Support Pound South African Rand (GBP/ZAR) Exchange Rate
Softening South African producer price index figures helped the Pound Sterling to South African Rand (GBP/ZAR) exchange rate bounce back today.
Evidence that inflationary pressure within the South African economy is easing left the South African Rand (ZAR) on a softer footing against its rivals.
Escalating geopolitical tensions over Hong Kong also put a dampener on the risk-sensitive Rand, with markets bracing for the risk of greater global trade disruption as relations between the US and China sour.
Although the South African government remains on track to continue easing lockdown conditions in the days ahead this was not enough to keep the Rand from shedding some of its recent gains.
With inflation easing and the impact of the global pandemic lingering the potential for further ZAR exchange rate gains appeared limited at this stage.
Risk of Negative BoE Interest Rates Continues to Fuel GBP Exchange Rate Weakness
Even so, support for Pound Sterling (GBP) remained generally muted as markets continued to weigh up the odds of the Bank of England (BoE) cutting interest rates into negative territory.
As BoE policymaker Michael Saunders also showed little willingness to rule out the possibility of negative rates GBP exchange rates struggled to gain any significant traction this morning.
Brexit-based anxiety also limited the potential for Pound gains, with the UK looking at increasing risk of ending the transition period without any deal agreed.
The risk of trade reverting to World Trade Organisation (WTO) standards looks set to weigh on economic activity in the months ahead, adding to the negative impact of the Covid-19 crisis.
Sharp Decline in Car Production Set to Weigh on Pound Sterling Demand
GBP exchange rates could face fresh downside pressure ahead of the weekend if April’s UK car production data weakens as anticipated.
Evidence of a fresh decline in car production may fuel anxiety over the wider economic outlook, with a deep drop in output likely to hamper the chances of an imminent recovery.
Any softness in May’s Nationwide house price index reading could also leave the Pound exposed to selling pressure as confidence in the underlying health of the UK economy diminishes.
As long as activity looks set to remain weak throughout the second quarter the potential for a further GBP/ZAR exchange rate rally appears muted.
Narrowed SA Trade Surplus Forecast to Dent South African Rand
However, with forecasts pointing towards a narrowing of the South African trade surplus in April the Rand could lose further strength on Friday.
Given existing worries over the health of the South African economy, which saw significant disruption thanks to severe lockdown restrictions, any signs of trade weakness could weigh heavily on ZAR exchange rates.
With trade conditions looking set to prove challenging for some time to come, even as global lockdown restrictions ease, a disappointing showing here is likely to dent the Rand.
Any fresh resurgence in market risk aversion could also drag on ZAR exchange rates heading into the weekend, as rising tensions between the US and China look set to fuel further anxiety.