The Pound South African Rand (GBP/ZAR) exchange rate traded in a wide range last week as markets responded to the latest UK economic data by adjusting their expectations for more monetary tightening from the Bank of England (BoE).
So far this week, GBP/ZAR has jumped higher after the UK’s preliminary PMI surveys smashed forecasts. The manufacturing PMI rose from 47 to 49.2, much better than the expected 47.5. Meanwhile, the UK’s vital services sector returned to growth this month, printing at 53.3 – up from 48.7 and above forecasts of 49.2. There are hopes that the UK may be able to avoid a recession, and traders are also betting on more rate rises from the BoE.
Daniel Mahoney, UK Economist at Handelsbanken, commented:
‘We will, of course, have to await further data releases to make firm conclusions, but there is no doubt that these much better than anticipated PMI readings could signal that forecasters are currently being too downbeat on short-term growth prospects for the UK economy.
‘And while it is welcome that the UK economy may be proving more resilient than expected, there is evidence in this release that inflation from the services sector could be especially stubborn, which may indicate that the Bank of England has to tighten monetary policy further.’
This is lifting GBP/ZAR today.
What’s Been Happening: GBP/ZAR Wavers Higher amid UK Data and SA Worries
The South African Rand (ZAR) fell against the Pound (GBP) early last week, as investors remain wary of the currency after South African President Cyril Ramaphosa declared a ‘state of disaster’ amid the country’s energy crisis.
South Africa’s latest inflation rate reading failed to lift ZAR midweek as it printed in line with forecasts.
A shifting market mood through the second part of the week saw the risk-sensitive Rand rise and fall, ending the week lower as sentiment soured.
Meanwhile, the Pound recovered from its initial dip last week following strong UK employment data. A low jobless rate and rising wage growth raised expectations of more interest rate rises from the Bank of England.
Sterling then slumped after UK inflation cooled more than forecast, with traders sharply repricing BoE rate hike bets.
Friday saw the Pound then rebound amid reports that the UK and the EU were close to resolving the Northern Ireland Protocol dispute. However, this week those hopes faded, trimming GBP’s gains.
Three Things to Watch Out for This Week
- South Africa Budget
South Africa’s National Treasury will outline its 2023 Budget this week. Investors will be watching the budget carefully, considering the many serious challenges facing the country. A downbeat outlook could dent the Rand.
- BoE Speeches
Amid a lack of notable UK data through the rest of the week, GBP investors could focus on BoE policymaker speeches. Suggestions of future rate cuts could dent the Pound.
- Risk Appetite
The market mood could also trigger significant movement for the pairing. If sentiment sours – due to economic or geopolitical fears – the Rand could weaken.
GBP/ZAR Forecast
This week could bring heightened volatility in the Pound Rand pair as markets digest South Africa’s Budget and its implications for the country’s economy.