Pound South African Rand (GBP/ZAR) Exchange Rate Tumbles as UK GDP Data Disappoints

Pound South African Rand Exchange Rate falls on GBP Weakness

The Pound South African Rand (GBP/ZAR) exchange rate dipped this morning as UK GDP data prints below expectations of a 3.8% rise. Despite poor South African manufacturing data yesterday, the Rand (ZAR) is trading up against several of its peers.

At the time of writing, GBP/ZAR is trading at R19.5561, down 0.4% from today’s opening levels.

Pound (GBP) Sentiment Falls on GDP, Dovish BoE Comments

The Pound (GBP) is trading mixed today as tailwinds from a risk-on mood are countered by weaker-than-expected GDP data. This morning’s figures revealed growth of 3.6%, rather than the 3.8% expected.

Performance in the services sector dragged down the overall growth rate, printing 6.7 percentage points below the pre-Covid peak as eateries and non-essential stores operate cautiously: considering July only, GDP expanded by a mere 0.1%, missing forecasts of 0.6% growth.

Also weighing upon the Pound, dovish comments from the Bank of England (BoE) officer Andrew Bailey prepare investors for a delay to the next rate hike.

Bailey mentioned that the new BoE guidance implied the conditions believed necessary for a rate hike are now in place, but are no longer sufficient given ongoing economic uncertainty. At its August meeting, the BoE’s Monetary Policy Committee (MPC) voted to keep its benchmark Bank Rate at an all-time low of 0.1%.

Sentiment within the MPC is mixed. Deputy Governors Ben Broadbent and Dave Ramsden said on Wednesday they thought the minimum conditions for a rate hike had been met, while another member, Silvana Tenreyro, said she felt they had not- and that the BoE should not put too much weight on short-term supply-chain bottlenecks.

South African Rand (ZAR) Strengthens on Hawkish SARB Comments

The Rand (ZAR) has risen today against Sterling, as investors take heart from the comments of South African Reserve Bank (SARB) Governor Lesetja Kganyago.

Kganyago made the case on Wednesday for adopting an inflation target of 3 or 4% with a 1% margin of error on either side: such a recommendation would mean South Africa is already above its target range. Interest rates were initially cut to a record low of 3.5% following a Covid-related collapse in inflation.

Speaking at Stellenbosch university, Kganyago said that ‘monetary policy stands out today as South Africa’s main source of macroeconomic resilience; an area where we as a country have made careful policy choices, and then stuck with them.’

He then followed: ‘if we want to keep interest rates low, the most important thing we can do is to lower the inflation target… I take the view that 3% would be a good point target.’ The speech’s audience were reassured that the SARB is a credible and effective institution, to be trusted with inflation targeting.

GBP/ZAR Exchange Rate Forecast: Pound to Pick Up on Jobs Data and Inflation?

Into next week, the Pound kicks off with a clutch of fresh data – including August’s claimant count change and UK inflation rate.

According to predictions, the number of people claiming unemployment benefits is due to drop by 26K – a positive sign of society’s reopening. On Tuesday, inflation is scheduled to rise to 2.9% from 2%, signifying healthy economic expansion.

Meanwhile, growth in South African retail sales is expected to slow according to Wednesday’s data. If this occurs as predicted, ZAR may face headwinds.