Pound South African Rand Weekly Forecast: GBP/ZAR Exchange Rate to Recover on Fed Rate Hike Bets?

The Pound South African Rand (GBP/ZAR) exchange rate zigzagged lower last week as expectations of a rate rise from the South African Reserve Bank (SARB) boosted the South African Rand (ZAR).

What’s Been Happening: GBP/ZAR Falls on SARB Rate Hike Bets

The Rand fluctuated against the Pound (GBP) early last week amid a shifting market mood and volatility in the US Dollar (USD), with which the Rand is negatively correlated.

The Rand then began to hold its gains as the week went on, boosted by expectations that the SARB will raise interest rates early this year.

ZAR edged even higher as the week came to a close thanks to a weaker US Dollar. US data on Thursday and Friday printed below expectations, giving the Rand room to rise.

Meanwhile, GBP investors were initially upbeat about the UK’s Covid situation. The UK government announced that it did not yet intend to bring in tougher measures.

Bets for a Bank of England (BoE) rate hike also picked up, boosting Sterling. Markets priced in an 82.5% chance that the BoE will hike rates again next month.

However, Omicron optimism faded as the week went on. Crucial services in the UK are struggling due to severe staff shortages, which concerned GBP investors. As a result, GBP/ZAR stumbled.

Three Things to Watch Out for This Week

  1. US Inflation Rate

Due to the negative correlation between ZAR and USD, a hot inflation rate reading from the US could end up weighing heavily on the Rand.

  1. Risk Appetite

Market mood is also likely to influence the risk-sensitive Rand. Will Omicron optimism return? Or will prospects of a Fed rate hike keep rattling investors?

  1. UK GDP

Economists expect UK GDP to have grown by 0.4% in November, which could support the Pound at the end of the week.

GBP/ZAR Forecast

This week, GBP/ZAR could be primarily driven by Fed policy expectations. If the US Dollar soars and market sentiment sours, the Pound may be able to capitalise on a weaker Rand.

Samuel Birnie

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