Pound South African Rand Weekly Forecast: GBP/ZAR Investors to Focus on CPIs

The Pound South African Rand (GBP/ZAR) exchange rate fell to a two-week low last week as a dip in the US Dollar (USD) boosted the South African Rand (ZAR).

So far this week GBP/ZAR has continued to waver, losing ground yesterday and regaining it today.

What’s Been Happening: GBP/ZAR Drops to Two-Week Low amid USD Downside and ‘Partygate’ Scandal

The South African Rand initially lost ground against the Pound (GBP) last week, as a gloomy market mood weighed on the risk-sensitive Rand.

ZAR was then able to strengthen thanks to its negative correlation to a weakening US Dollar. Testifying in front of the US Senate, Federal Reserve Chair Jerome Powell sounded less hawkish than investors had hoped, which sent USD tumbling.

The Rand then experienced some volatility towards the end of the week as the market mood shifted, but ZAR held on to most of its weekly gains.

Meanwhile, the Pound fell victim to some profit-taking on Tuesday after hitting multi-month highs against many of its peers.

Political uncertainty then undermined the currency for much of the week. Boris Johnson apologised for attending a gathering that may have broken lockdown laws, prompting calls for him to resign.

At the end of the week, GBP/ZAR fluctuated amid mixed UK economic news. While some retailers reported higher profits in December, the hospitality industry saw sales slump due to Omicron.

Three Things to Watch Out for This Week

  1. UK Inflation

Economists expect inflation in the UK to have hit 5.2% in December. A higher reading would likely boost Bank of England (BoE) rate hike bets, thereby supporting the Pound.

  1. SA Inflation

Likewise, if South Africa’s CPI overshoots expectations then ZAR could firm. Forecasters see South African inflation rising to 5.7% last month.

  1. Risk Appetite

A more upbeat market mood will likely favour the risk-sensitive Rand, while a risk-off sentiment would weigh on the currency.

GBP/ZAR Forecast

This week’s trade could be dominated by the inflation rates for both the UK and South Africa. With both countries’ central banks tightening monetary policy, investors will be using the CPIs to assess the likelihood and timing of further rate hikes.

Samuel Birnie

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