Pound South African Rand (GBP/ZAR) Exchange Rate Remains Volatile following CPI Releases

Pound South African Rand (GBP/ZAR) Exchange Rate Wavers as Traders await SARB Decision

(Updated 15:45, 17/11/21) The Pound South African (GBP/ZAR) exchange rate has continued to waver today, trading sideways overall, ahead of the South African Reserve Bank’s (SARB) interest rate decision tomorrow.

The Pound (GBP) looks like it’s unable to make further gains on Bank of England (BoE) rate hike bets, perhaps as markets are more cautious since the BoE wrong-footed traders earlier this month.

Meanwhile, South African Rand (ZAR) investors are holding back ahead of the SARB’s policy decision tomorrow. The decision is expected to be tight, and economists are split over what the outcome will be. As such, investors may want to wait before buying or selling the Rand.

While these factors are keeping the GBP/ZAR pair fairly rangebound, the Rand is exhibiting the volatility associated with emerging-market currencies. The Pound Rand pair has see-sawed between ZAR20.7978 and ZAR20.9146, holding near two-week highs.

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Pound South African (GBP/ZAR) Rand Exchange Rate Swings as Markets Digest CPIs

The Pound South African Rand (GBP/ZAR) exchange rate has fluctuated today as both the UK and South African CPI releases cause significant movement in the currency pair. 

At the time of writing, the Pound (GBP) just about has the edge, with GBP/ZAR wavering near a two-week high. UK inflation rose more than expected last month while South Africa’s CPI remained flat. However, more movement looks likely. 

South African Rand (ZAR) Wavers as CPI Holds Steady 

The South African Rand (ZAR) wavered this morning as traders reacted to South Africa’s latest CPI. 

After slipping against the Pound (GBP) following the UK’s inflation rate reading, ZAR regained some ground as markets awaited South Africa’s CPI results. 

However, South Africa’s inflation rate held steady at 5%. While this was in line with economists’ expectations, ZAR investors were disappointed as many had likely been hoping the reading would overshoot forecasts, as the UK CPI did. 

The inflation data was particularly important ahead of the South African Reserve Bank’s (SARB) interest rate decision tomorrow. Experts are split over whether the central bank will raise rates or not. The current consensus forecast is that it will keep rates at 3.5%, but that recently changed from expectations of a rise to 3.75%. 

Some investors were doubtless hoping that a higher-than-expected CPI reading would tip the balance in favour of a rate hike. However, with inflation staying flat, ZAR seems to be slipping. 

Pound (GBP) Holds at Two-Week High as Inflation Overshoots 

Meanwhile, the Pound is staying strong near a two-week high against the Rand today as markets are once again expecting the Bank of England (BoE) to raise interest rates before the year is up. 

After hawkish comments from BoE Governor Andrew Bailey on Monday and impressive post-furlough employment data yesterday, today’s CPI has significantly increased the likelihood of a rate rise. 

Inflation in the UK jumped from 3.1% in September to 4.2% in October. This is the country’s highest inflation reading since December 2011 and well above market forecasts of 3.9%. As such, bets for a December rate hike are back on. 

However, GBP investors are being far less bullish this time around. After the BoE shocked markets by not raising rates earlier this month, it seems that traders are exercising more caution. A rate hike just before Christmas could prove unpopular, and the BoE doves might still prefer to wait and see. 

Some BoE policymakers may also be fearful of a policy error similar to when the European Central Bank (ECB) raised rates in 2008 and again in 2011, stifling growth and deepening debt. With UK growth slowing and Brexit issues looming, there’s a chance the BoE could hold rates. This chance could be limiting GBP’s gains today. 

GBP/ZAR Exchange Rate Forecast: Movement Restricted ahead of SARB Decision? 

As the session goes on we may see GBP/ZAR stay in a similar range to this morning’s trade. GBP investors could remain optimistic for a December rate rise but with their bullish tendencies tempered by the fear of getting caught out again. 

Meanwhile, ZAR traders may stay quiet ahead of the SARB’s rate decision. If the central bank holds its repo rate, as expected, then GBP/ZAR could climb higher tomorrow. But if policymakers surprise markets with a rate hike then the Rand would likely soar. 

Samuel Birnie

Contact Samuel Birnie