Pound South African Rand (GBP/ZAR) Exchange Rate Soars as BoE Intervention Calms Markets

Pound South African Rand (GBP/ZAR) Exchange Rate Leaps as Bond Yields Fall

(Updated 16:30 29/09/22)

The Pound South African Rand (GBP/ZAR) exchange rate continued to climb over the course of today, reclaiming many of its losses following last week’s mini budget.

Wednesday’s intervention from the Bank of England (BoE) in the bond market seems to have calmed investors fears in the short-term. This has in turn led to fresh gains for Sterling.

There are concerns that the gains could be short-lived, however. In a note to clients, Radobank strategists including Richard McGuire said:

‘The reality is that the BOE has applied a temporary sticking plaster to a fiscal-credibility issue. We think that the market will keep pushing the BOE to make greater and greater intervention – but the problem will not be solved without a change in the message on the fiscal side.’

At time of writing the GBP/ZAR exchange rate was at around R19.8416, which was up roughly 2.7% from the morning’s opening figures.

Original content below:

Pound South African Rand (GBP/ZAR) Exchange Rate Rises amid Risk-Off Mood

The Pound South African Rand (GBP/ZAR) exchange rate is climbing today. The currency pair is likely being bolstered by continued load shedding in South Africa as well as a risk-off mood. The Bank of England’s (BoE) intervention last night could also be keeping confidence in GBP/ZAR high.

At time of writing the GBP/ZAR exchange rate is at around R19.4367, which is up roughly 0.6% from this morning’s opening figures.

Pound (GBP) Ticks Higher as PM Truss Defends Mini Budget

The Pound (GBP) is firming against most of its rivals today. An emergency intervention in the bond market from the Bank of England on Wednesday likely helped to restore some confidence in Sterling overnight.

The central bank announced yesterday that it would be initiating a 13-day program of buying government bonds. Reports have indicated that many UK pension funds were set to collapse had the BoE not intervened.

Overall confidence in the Pound remains low however as markets continue to respond to last week’s mini budget. GBP shed some of its overnight gains this morning as UK Prime Minister Liz Truss took to the airwaves to defend the government’s economic policy.

Analysts have been critical of the government’s proposed widespread tax cuts. ANZ economist Finn Robinson said:

‘It’s all a bit of a mess. How long the calm and fresh optimism lasts remains to be seen. For one, this re-stimulation will lift, not quell UK inflation, and that’s bad for bonds and sterling.’

South African Rand (ZAR) Falls as Further Power Cuts Expected

The South African Rand (ZAR) is slumping today as widespread load shedding continues across the country. The impact of the power cuts on the country’s economy is likely weigh on the Rand.

Power utility Eskom announced on Wednesday that load shedding would remain at stage 4 until further notice. The utility provider stated that technical issues at one of its power stations caused the shutdown of multiple generators. The shortages come after the country’s worst week on record for power availability.

SA economists have estimated that the country’s economic is losing between R150M and R200M a day due to the cuts. The country’s Bureau for Economic Research (BER) signalled that the load shedding could potentially push SA into a technical recession.

GBP/ZAR Exchange Rate Forecast: Will UK’s Economic Plans Continue to Weigh on Sterling?

Looking to the remainder of the week for Sterling, a speech from BoE policymaker Dave Ramsden later today could prompt movement in the currency. Investors will be looking for signs that the central bank will continue to intervene to keep UK markets stable.

On Friday, the final reading of second quarter GDP growth figures could pull the Pound lower. The figures are expected to be revised lower to -0.1% which would signal that the UK economy is in a recession.

Finally for the Pound, market reactions to the UK’s economic policies could also drive movement in the currency.

For the South African Rand, a forecast drop in August’s PPI figures later today could see the Rand slip if it reduces rate hike bets. On the other hand, signs of cooling inflation could bolster confidence in the SA economy.

A predicted narrowing of the country’s trade surplus in August may limit significant bets on the Rand. The impact is likely to be minimal however if the surplus remains strong.

The ramping up of load shedding measures across South Africa could also impact enthusiasm for the currency.

Gareth Monk

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