The Pound South African Rand (GBP/ZAR) exchange rate fell sharply last week as the emerging-market Rand benefitted from the Bank of England’s (BoE) decision not to raise interest rates.
So far this week the pair is trading flat, as a modest recovery in the Pound (GBP) against its other rivals prevents further losses against the South African Rand (ZAR).
What’s Been Happening: GBP/ZAR Tumbles following BoE Decision
The Rand struggled to catch bids early last week, as falling coal and iron ore prices dented the commodity-linked currency. In addition, South African local elections caused some anxiety among investors, particularly after July’s deadly unrest.
However, the Rand recovered throughout the rest of the week as three central banks left interest rates unchanged. The Reserve Bank of Australia (RBA), Federal Reserve and Bank of England all decided not to hike rates.
As higher rates in these developed countries would have drawn capital away from emerging-market economies, such as South Africa, this news cheered ZAR investors. The Rand was able to regain the previous week’s losses.
Meanwhile, gains for the Pound were capped last week, as Brexit tensions flared.
Sterling firmed in the run-up to the BoE policy decision as traders expected the bank to raise rates. And this upside was boosted by an impressive UK services PMI.
However, the BoE stunned markets by leaving rates unchanged. As a result, Sterling slumped.
Three Things to Watch Out for This Week
- UK GDP
The UK’s latest GDP data is expected to show that, despite a steady month-on-month rise, growth is slowing. Any unexpected results could cause sharp movement in GBP exchange rates.
- SACCI Business Confidence
The Rand could be supported by South Africa’s latest business confidence report, with morale expected to have improved slightly in October.
- Commodities Prices
With some of South Africa’s key export commodities beginning to recover this week, any sustained gains could boost the Rand.
If commodities prices rise higher this week then the Rand could come out on top. However, GBP bulls are currently pushing back against further losses.