Pound South African Rand (GBP/ZAR) Exchange Rate Continues to Tumble
Updated 15:30, 20/1/22) The Pound South African Rand (GBP/ZAR) has extended its two-day slump this afternoon, hitting its worst level since mid-November – when the Pound (GBP) was still reeling from the Bank of England’s (BoE) shock decision to leave interest rates unchanged.
The downside in GBP/ZAR comes as the South African Rand (ZAR) continues to enjoy tailwinds from yesterday’s higher-than-expected CPI.
In addition, gold and platinum prices have continued to climb today, which is also boosting the Rand. And the market mood remains upbeat, favouring the riskier Rand over Sterling.
Meanwhile, the Pound remains beset by political turmoil. Earlier today, Conservative MP William Wragg accused the government of blackmailing MPs suspected of opposing Boris Johnson. Since these allegations, MP Christian Wakeford – who yesterday defected from Conservative to Labour – has come forward claiming he was threatened with less funding for his constituency. Wakeford told the BBC:
‘I was threatened that I would not get a school for Radcliffe if I didn’t vote one particular way. This is a town that’s not had a high school for the best part of 10 years. How would you feel holding back the rejuventation of a town for a vote? It didn’t sit comfortably, and that was really [me] starting to question my place where I was, and ultimately to where I am now.’
Wakeford’s accusation could enable a police inquiry into the allegations as it may override parliamentary privilege.
The allegations pile even more pressure on Boris Johnson, who is already facing calls to resign. This political uncertainty is, of course, bad news for the Pound.
Original article continues below:
Pound South African Rand (GBP/ZAR) Exchange Rate Continues Post-CPI Slide
The Pound South African Rand (GBP/ZAR) exchange rate has slipped this morning, hitting a three-week low of ZAR20.7.
The downside comes as the Rand extends yesterday’s gains, boosted by rate hike bets and a risk-on market mood. Meanwhile, Sterling is subdued as investors digest yesterday’s UK CPI and comments from Bank of England (BoE) Governor Andrew Bailey.
South African Rand (ZAR) Extends Upside following Strong CPI
The South African Rand (ZAR) jumped against the Pound (GBP) at the open of today’s European session, extending yesterday’s post-CPI gains.
South Africa’s inflation rate beat forecasts on Wednesday, surging from 5.5% to 5.9%, 0.2 percentage points above the expected rate.
The CPI boosted bets that the South African Reserve Bank (SARB) will raise interest rates again at its policy meeting next week. The consensus among economists polled by Reuters is that the SARB will increase its repo rate by 25 basis points, bringing it up to 4%.
Adding to ZAR’s current strength, precious metals are performing well in the commodities market. Gold and platinum – two of South Africa’s key exports – are holding at two-month highs.
And finally, an upbeat market mood has further boosted the risk-sensitive Rand this morning. Overnight, the People’s Bank of China (PBoC) cut lending rates for corporate and household loans for the second consecutive month. The move follows a key interest rate cut earlier this week as the PBoC tries to rekindle fading economic growth.
This sent Asian stocks higher overnight, as the more favourable trading conditions cheered investors. However, European sentiment is less upbeat this morning amid UK political jitters and geopolitical tensions on the Russia-Ukraine border. As a result, risk sentiment may no longer be supporting the Rand.
Pound (GBP) Subdued as Investors Mull UK CPI
Meanwhile, the Pound is rather muted today as GBP investors mull over yesterday’s CPI release and comments from BoE Governor Andrew Bailey.
Like the South African CPI, UK inflation also beat expectations, rising to a near 30-year high of 5.4%. In the afternoon, Bailey told MPs that higher inflation could persist for longer and that wage rises could keep inflation above target.
However, Bailey also said that the looming cost-of-living crisis in the UK could hit demand. This may then lead to higher unemployment, pulling inflation down.
The comments come two weeks ahead of the BoE’s next policy meeting. Therefore, GBP investors will likely be sifting through Bailey’s words for clues as to what the central bank might do.
But Bailey has been called the new ‘unreliable boyfriend’ in recent months – a label originally applied to former BoE Governor Mark Carney – after wrong-footing markets at two consecutive policy decisions due to poor communication.
As a result, GBP investors may be tentative, avoiding any aggressive bets.
In addition, political jitters around the future of Boris Johnson’s premiership and a lack of UK data are adding to Sterling’s subdued mood today.
GBP/ZAR Exchange Rate Forecast: Rand to Stay Strong?
Although it currently looks as though the Rand will stay strong against the Pound today, GBP/ZAR is characteristically volatile and we could see some unexpected movement.
Risk appetite is likely to influence the Rand, along with the currency’s negative correlation to the US Dollar (USD). If market sentiment sours, or if USD firms following American data releases this afternoon, then GBP/ZAR may be able to recoup some losses due to a weaker Rand.
As for the Pound, political worries may weigh on it through the day. Any new negative headlines could dent GBP, such as allegations of blackmail and intimidation against Tory MPs seeking a vote of no confidence in Boris Johnson.
Next week, the SARB and Federal Reserve interest rate decisions will be the focus. If the SARB hikes, as expected, then the Rand could climb. However, if the Fed takes an even more hawkish approach than markets expect then this could weigh on ZAR.