The Pound to South African Rand (GBP/ZAR) exchange rate fell back last week as the UK’s latest data releases cast some economic gloom over the country.
What’s Been Happening: Pound Tumbles as UK Plunges into Recession
After an initial rally, the Pound found itself on the defensive through much of last week’s session amidst concerns over the UK economy.
This was kicked off by the UK’s latest unemployment figures, which reported a sharp fall in employment and the first contraction in real wage growth since 2001.
Piling even more pressure on Sterling was Wednesday’s GDP release, which reported a record 20.4% contraction in growth and prompted Chancellor Rishi Sunak to warn that the UK is facing ‘hard times’.
Meanwhile, after a slow start to the week amidst concerns over renewed US-China tensions, the South African Rand enjoyed some notable support last week.
This was attributed to an improving market mood and broad weakness in the US Dollar, which helped to bolster the appeal of the risk-sensitive Rand.
Three Things to Watch Out for This Week
1. UK Inflation
Potentially acting as the main catalyst of movement in the Pound this week will be the UK’s latest CPI release. This is expected to report that domestic inflation slowed last month, likely dragging on Sterling as it puts more pressure on the BoE to keep easing its monetary policy.
2. UK PMIs
Also influencing GBP exchange rates this week will be the publication of the UK’s preliminary PMIs for August. Will another upbeat reading help to buoy the Pound or will a deteriorating employment outlook weaken Sterling sentiment?
3. South African Inflation
For ZAR investors the focus this week will be on South Africa’s own PMI figures. With inflation expected to have slowed again in July, the Rand may come under pressure from fears it could push the SARB into making additional rate cuts.
Looking ahead, while the GBP/ZAR exchange rate is off to a strong start so far this week, could the UK’s latest data releases infuse some volatility into the pairing later in the session?