GBP/ZAR Exchange Rate Slips Despite Prospect of Higher US Interest Rates
(Updated: 16:45, 7/3/23) The Pound South African Rand exchange rate has slipped from its best levels this afternoon.
While the GBP/ZAR exchange rate remains up on the day, it has fallen from the high of ZAR22.0817 struck just after midday and is currently trading at around ZAR22.0001.
This pullback in the GBP/ZAR exchange rate comes in spite of a strong upswing in the US Dollar (USD) after Federal Reserve Chair Jerome Powell stunned markets with a particularly testimony before congress. Powell’s comments have stoked expectations for a 50bps rate hike from the Fed this month.
While the prospect of higher US interest rates would normally weaken the Rand, GBP investors seem particularly rattled by the news.
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Pound South African Rand Exchange Rate Strengthens on Weak SA GDP
The Pound South African Rand (GBP/ZAR) exchange rate is rallying this morning after South Africa’s latest GDP release missed forecasts.
At the time of writing the GBP/ZAR exchange rate is trading at around ZAR22.0009. Up roughly 0.6% from this morning’s opening rate.
South African Rand (ZAR) Tumbles on Lacklustre Growth Figures
The South African Rand (ZAR) is on the defensive this morning, in response to disappointing domestic growth figures.
South Africa’s fourth quarter GDP figures reported economic growth contracted by 1.3%. This was down from a 1.8% expansion in the previous quarter and missed forecasts for a more modest 0.4% decline.
South Africa’s recent power crisis unsurprisingly drove the slump in growth. Regular rolling blackouts are said to be costing the local economy millions in lost activity.
This marks the sharpest downturn in growth since Q3 2021. When deadly riots rocked the country and caused billions in damage.
The Rand is retreating as investors fear a likely recession facing South Africa at the start of 2023 might be deeper-than-previously feared.
Pound (GBP) Buoyed by Hawkish BoE Comments
The Pound (GBP) is support this morning by comments from Bank of England (BoE) policymaker Catherine Mann.
Striking her usual hawkish tone, Mann said ‘more needs to be done with rates’. She expressed concerns over persistent core inflation and how aggressively other central banks are raising rates.
Mann warned the Pound could face more downward pressure if these hikes are not fully priced in by investors.
Mann said:
‘The important question for me with regard to the Pound is how much of that existing hawkish tone is already priced into the Pound.
‘If it’s already priced in, then what we see is what we get. But if it’s not completely priced in, then there could be depreciation pressure.’
However Sterling’s gains are capped after the Democratic Unionist party (DUP) announced it has launched a consultation process to look at the Windsor Framework. The decide whether to back the revision to Northern Ireland’s post-Brexit trade agreement.
This is sapping some of the optimism which accompanied the announcement of the agreement last week. GBP investors fear this could draw out a vote on the deal and leave Sterling vulnerable to political uncertainty.
Pound South African Rand Exchange Rate Forecast: Weak Risk Appetite to Weigh on ZAR?
A sparse data calendar may see movement in the Pound South African Rand (GBP/ZAR) exchange rate linked to market risk dynamics in mid-week trade.
As an emerging market currency the Rand is likely to be particularly sensitive to market sentiment. A potential risk to the Rand will be Federal Reserve Chair Jerome Powell’s two-day testimony before US congress.
A broadly hawkish tone from Powell could boost Fed rate hike bets. The prospect of higher US interest rates are likely to translate into a higher US Dollar (USD) and weaken market risk appetite.