Pound South African Rand (GBP/ZAR) Caps Losses as BoE Decision Sparks Bullish Trading
(Updated 15:50, 23/9/21) The Pound (GBP) capped its losses against the South African Rand (ZAR) this afternoon as the Bank of England (BoE)’s interest rate decision boosted GBP sentiment.
The central bank acknowledged that the case for modest tightening strengthened from August, as two policymakers voted for an early end to government bond purchases, compared with only one in the previous meeting. Investors were encouraged by the apparent increase in hawkish sentiment.
Meanwhile, South Africa’s interest rate decision had little effect on GBP/ZAR, as policymakers left the benchmark rate unchanged at 3.5%. The decision comes amidst ongoing uncertainty around the Covid-19 pandemic, in an attempt to support South Africa’s fragile economic recovery against the backdrop of a relatively contained inflation outlook.
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GBP/ZAR Exchange Rate Dives as South African Rand Rises on Risk Appetite
The Pound South African Rand (GBP/ZAR) exchange rate has fallen this morning as Rand sentiment is bolstered by a risk-on market mood. The Pound trades low in comparison, as investors await the Bank of England’s interest rate decision later today.
At the time of writing, GBP/ZAR is trading at R20.0388, down 0.5% from today’s opening levels.
South African Rand (ZAR) Firms on Strong Risk Appetite
The South African Rand (ZAR) has risen against the majority of its peers today as trading confidence is boosted by a strong risk appetite. The US Dollar (USD) has fallen in line with Treasury yields, drawing support away from the safe-haven currency.
After spiking yesterday on the Federal Reserve’s rate decision and commentary, USD is now facing headwinds as traders are largely optimistic about the Chinese real-estate firm Evergrande, which earlier in the week had dented risk appetite by admitting to being in financial straits.
Consequently, riskier assets are finding renewed support. South Africa’s main commodity, gold, is trending down; but iron ore has appreciated with a strengthening market mood, potentially lending some small upside to the Rand.
Today’s interest rate decision from the South African Reserve Bank (SARB) is not expected to have any considerable effect on trading, as rates will most likely remain unchanged at 3.5%. Yesterday’s inflation release did little to encourage hawkish action from policymakers, printing just past the bank’s target range midpoint at 4.5%.
Pound (GBP) Trades Mixed Ahead of BoE Decision
The Pound is trading in a mixed range against its peers as lower-than-expected PMI data limits gains ahead of the BoE’s interest rate decision later today.
Manufacturing fell to 56.3 in September from 60.3 in August: signalling the slowest expansion in factory activity since February. The fall was largely the result of material shortages, as well as fading demand.
Services data had been expected to remain the same as last month, but instead dropped to 54.6 as new orders increased at a reduced pace and business from abroad resisted significant growth.
Later today, the BoE is expected to leave interest at 0.1% and its bond-buying programme unchanged at £895bn. Last week’s high inflation may be discussed, lending a hawkish tone to proceedings.
At its last meeting, half of BoE policymakers signalled that some modest tightening over the next two years was likely to be necessary if the economy continues to improve: investors today will be paying close attention to members’ forecasts for the near-term.
Various banks are united, however, in the belief that today’s policy update will be uneventful. According to analysts at UOB:
‘UK policymakers will probably want more time to see how the labour market adjusts to the expiration of the furlough scheme before withdrawing stimulus. While we certainly would not rule out an earlier move, our base case, for now, is still for the first rate hike to come in 2023.’
Pound South African Rand Exchange Rate Forecast: Central Banks to Drive Movement
Both the SARB and the BoE are likely to provide further stimulus for currency movement today as investors wait to see how policymakers address recent inflation releases. A hawkish tone from either of the central banks could skew the exchange rate in favour of the currency mentioned, while dovish caution could suppress trading sentiment.
In the meantime, the GBP/ZAR exchange rate is likely to be driven by market mood, as traders continue to digest yesterday’s ZAR inflation data and the Fed’s forward guidance.