Pound South African Rand Exchange Rate Weekly Forecast: GBP/ZAR Rebounds from Five-Month Low

The Pound South African Rand (GBP/ZAR) exchange rate traded with extreme volatility last week. Concerns over UK fiscal policy resulted in dramatic swings in Sterling.

What’s Been Happening: Pound South African Rand Rocked by Fiscal Policy Drama

The Pound (GBP) initially plunged last week. The fallout from the previous week’s mini-budget trigging a major Sterling selloff.

GBP exchange rates quickly rebounded from its worst levels amid expectations the Bank of England (BoE) might step in with an emergency interest rate hike.

While the BoE ultimately ruled out an intermeeting rate hike, it announced an £65bn intervention into the UK bond market on Wednesday.

This helped to offset the International Monetary Fund’s (IMF) criticism of the government’s tax cut plans. And paved the way for Sterling to rally sharply in the second half of the week.

Chancellor Kwasi Kwarteng’s U-turn on his high-income tax cuts helped to extend the Pound’s gains into this week.

Meanwhile the Rand (ZAR) faced headwinds last week as US Dollar (USD) strength weighed on market risk appetite. Investors also remained wary of the emerging market currency amid concerns over aggressive Federal Reserve rate hike bets.

Domestic power shortages then added to the pressure on ZAR exchange rates later in the week.

Three Things to Watch Out for This Week

  1. UK Fiscal Policy

Movement in the Pound is likely to remain tied to UK fiscal developments this week. Kwarteng’s vow to bring forward his debt plan could help to underpin the Pound’s recovery.

  1. UK Services PMI

Sterling’s upside potential may be capped if the UK’s latest PMI figures confirm the service contracted last month.

  1. Load Shedding

South Africa’s power woes could continue to weigh on the Rand this week. If state utility Eskom is forced to introduce more load shedding expect to see ZAR exchange rates weaken.

Pound South African Rand Forecast

The Pound South African Rand exchange rate is also likely to be influenced by market sentiment this week. A risk-on mood could buoy the Rand.

Matthew Andrews

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