The Pound South African Rand (GBP/ZAR) exchange rate rallied sharply last week. The pairing nearing a one-year high amid South Africa’s power crisis and Bank of England (BoE) rate hike bets.
What’s Been Happening: Pound South African Rand Soar amid SA Power Crisis
The South African Rand (ZAR) came under heavy selling pressure at the start of last week. A domestic power crisis continued to weigh on ZAR sentiment as state utility Eskom implemented additional loadshedding measures.
Also exerting pressure on the Rand was South Africa’s consumer price index. The latest slowdown in inflation stifled South Africa Reserve Bank (SARB) rate hike expectations.
The ZAR selloff then gathered pace in the latter half of the week as some abysmal US data stoked recession fears. This spooked investors and saw them shy away from the emerging market currency.
Meanwhile, the Pound (GBP) roared higher last week on the back of some robust UK wage growth and CPI figures. The data pointed to domestic inflation being stickier than previously thought and bolstered expectations for additional Bank of England (BoE) rate hikes.
However, the GBP/ZAR exchange rate fell back from its best levels on Friday, following the release of the UK’s latest retail sales figures. December’s figures reported a shock contraction in sales growth, reviving fears the UK may have fell into a recession at the end of 2022.
Three Things to Watch Out for This Week
- UK PMIs
The UK’s latest PMI figures reported a larger-than-expected contraction in the UK’s service sector this month. These are stoking growth concerns and weighing on the Pound.
- SARB Interest Rate Decision
The primary focus for ZAR investors this week will be the SARB’s latest interest rate decision. Will another 50bps rate hike help to buoy the Rand?
- Eskom Woes
ZAR exchange rates are also likely to remain sensitive to South Africa’s ongoing power crisis. If Eskom indicates it will need to implement more loadshedding measures the Rand could weaken.
Pound South African Rand Forecast
The Pound South African Rand exchange rate is also likely to remain sensitive to market sentiment this week. A cautious mood could see the GBP/ZAR exchange rate test a one-year high.