The Pound South African Rand (GBP/ZAR) exchange rate strengthened last week. A smaller-than-expected interest rate decision from the South African Reserve Bank (SARB) bolstered GBP/ZAR. Sterling meanwhile was supported by bets for a 50bps rate hike from the Bank of England (BoE).
What’s Been Happening: Rand Tumbles as SARB Hikes Rates Below Forecasts
The South African Rand (ZAR) slumped over the course of last week. The economic and practical impact of further load shedding kept pressure on ZAR.
ZAR extended these losses on Thursday following the SARB’s below-forecast 25bps rate hike. The central bank also downgraded its growth outlook, citing load shedding as a key factor.
The Pound (GBP) performed poorly last week. A deeper-than-expected January contraction in the UK’s dominant services sector initially weighed on Sterling.
A sharp slump in January’s distributive trades survey from the Confederation of British Industry (CBI) added to the retail sector’s poor outlook. The data prompted further losses in GBP.
On the other hand, Sterling saw more drastic losses limited by persistent BoE rate hike bets over last week. Markets continued to price in a 50bps interest rate hike in February.
Weekly highlights
- BoE Interest Rate Decision
With a 50bps rate hike largely priced in, investors will be looking to the BoE’s forward guidance for trading direction. Will hints of a slowdown from the central bank weigh on GBP?
- UK Final PMI Readings
The final readings of January’s PMIs are expected to confirm a contraction in the UK’s private sectors. Will the data add to fears of a deep recession and pull Sterling lower?
- South Africa Power Crisis
The threat of Eskom implementing stage 8 load shedding measures are likely to cast a long shadow over the Rand this week.
GBP/ZAR Forecast
Looking ahead, a speech from BoE chief economist Huw Pill on Friday may prompt additional movement in GBP. Markets will be watching the speech for signals of the central bank’s policy tightening schedule.