The Pound South African Rand (GBP/ZAR) exchange rate hit an eight-month high last week as the emerging-market Rand faced multiple headwinds.
What’s Been Happening: GBP/ZAR Hits Eight-Month High as Rand Tumbles
The South African Rand (ZAR) tumbled early last week as the US Dollar (USD) index rose by 0.5%, hitting a 16-month high. This strength in USD weighed heavily on emerging-market currencies, including the Rand.
When the South African Reserve Bank (SARB) surprised markets by raising its repo rate, this failed to give the Rand much support. The decision indicated a slower tightening cycle, meaning it was a dovish move in the long term.
Finally, the Rand was caught up in an emerging-market contagion after Turkey’s central bank cut its interest rate by 100 basis points. The Turkish Lira (TRY) tumbled and the Rand was dragged down with it to an eight-month low against the Pound.
Meanwhile, the Pound firmed as traders started pricing in a rate rise at the Bank of England’s (BoE) policy meeting next month.
Strong post-furlough employment data initially boosted rate hike bets, followed by the UK’s inflation rate, which exceeded expectations to hit a ten-year high of 4.2%.
GBP/ZAR has held near its eight-month high so far this week as a strong US Dollar keeps pressure on the Rand following Jerome Powell’s renomination as Chair of the Federal Reserve.
Three Things to Watch Out for This Week
- BoE Speeches
A number of BoE speakers, including Governor Andrew Bailey, could boost Sterling if they hint at a rate hike next month.
- FOMC Minutes
As the Rand is particularly sensitive to bets for a Fed rate rise, the latest meeting minutes from the Federal Open Market Committee (FOMC) may cause significant movement.
- SA Business Confidence
Business morale in South Africa is expected to stay the same for the fourth quarter of this year. Any unexpected results could affect GBP/ZAR.
It’s possible that GBP/ZAR could hold near its eight-month highs this week, while hawkishness from the Fed could see the pair climb even further.