The Pound South African Rand (GBP/ZAR) exchange rate traded in a wide range last week but managed to gain ground overall.
The pair has continued to waver this week as traders await the South African Reserve Bank’s (SARB) interest rate decision.
What’s Been Happening: GBP/ZAR Recovers on Brexit Hopes
The South African Rand (ZAR) took a hit early last week as the country’s struggling state utility Eskom extended scheduled power cuts.
ZAR fell further after the US CPI printed well above forecasts, boosting Federal Reserve rate hike bets, as a US rate rise would draw capital away from emerging-market economies, such as South Africa.
But the commodity-linked Rand was able to regain some ground as precious metals rallied. ZAR was also boosted by South Africa’s medium-term budget policy statement, which confirmed a smaller budget deficit.
Meanwhile, the Pound wavered last week amid concerns that the UK-EU Northern Ireland protocol dispute would escalate into a trade war.
A sharper-than-expected slowdown in UK GDP growth caused GBP/ZAR to shed Wednesday’s gains, which it had won thanks to the US CPI.
However, GBP investors dared to hope as Brexit negotiations resumed on Friday and GBP/ZAR edged higher.
Three Things to Watch Out for This Week
- UK Inflation Rate
After the strong UK jobs data on Tuesday, GBP investors will be eagerly awaiting the UK CPI. A high reading could boost bets for a rate hike in December.
- SA Inflation Rate
South Africa’s CPI is also out on Wednesday. Inflation is set to hold at 5%, but if it overshoots then attention will turn to the SARB decision the following day.
- SARB Interest Rate Decision
Economists are split over whether the SARB will raise its repo rate. Wednesday’s CPI reading could be a deciding factor.
This week’s action will be focused on inflation rates and central bank expectations. If markets start expecting a Bank of England (BoE) rate hike next month, GBP/ZAR could climb. But if the SARB raises rates, then the Rand may come out on top.