Pound South African Rand (GBP/ZAR) Exchange Rate Firms amid Buoyant UK Services Growth
(Updated 16:31 04/05/23)
The Pound South African Rand (GBP/ZAR) exchange rate is recouping its earlier losses. The pairing may be climbing off the back of a recovery in the US Dollar (USD) which could be weakening the South African Rand (ZAR).
The upward revision in the UK’s April service sector PMI could also be continuing to bolster GBP/ZAR today. Growth in the UK’s dominant sector was revised to a 12-month high earlier today.
At time of writing the GBP/ZAR exchange rate is at around ZAR23.0228, which is up roughly 0.2% from this morning’s opening figures.
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Pound South African Rand (GBP/ZAR) Exchange Rate Trends Sideways amid Rate Hike Bets
The Pound South African Rand exchange rate is trading in a narrow range today. Bets on further interest rate hikes from the South African Reserve Bank (SARB) could be limiting GBP/ZAR’s gains.
Conversely, Bank of England (BoE) rate hike bets may be preventing any drastic losses for the exchange rate. Confirmation of strong service sector growth may also be limiting GBP/ZAR’s downturn.
At time of writing the GBP/ZAR exchange rate is at around ZAR22.9803, which is virtually unchanged from this morning’s opening figures.
South African Rand (ZAR) Ticks Higher as US Fed Signals Rate Hike Pause
The South African Rand (ZAR) is edging higher today. The Rand may be finding support from signals that the Federal Reserve will keep interest rates on hold for the foreseeable future.
The Federal Reserve raised interest rates by 25bps overnight and hinted that further policy tightening decisions would be based on ‘the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments’.
The prospect of a 25bps rate hike from the SARB at its next meeting may also be lifting ZAR today.
Jeff Shultz, BNP Paribas South Africa senior economist, said:
‘Following the SARB’s more hawkish 50 basis point hike in March, we think that a terminal rate of 8.00% reached as early as next month remains very plausible.’
On the other hand, the implementation of stage 6 load shedding by state power utility Eskom may be keeping pressure on the Rand. Eskom stated that the move was due to persistent generator breakdowns.
Pound (GBP) Muted as Service Sector Performance Hits 12-Month High
The Pound (GBP) is seeing limited movements today amid thin trading conditions. Bets on a 25bps interest rate hike from the Bank of England may be underpinning Sterling.
Markets are continuing to price in at least one more hike from the central bank in May. Some analysts are even anticipating a June hike despite the prospect of easing inflationary pressures.
Speaking on the BoE’s forward path, former rate setter Michael Saunders said:
‘I think the cumulative effect of the tightening so far, plus another 25 basis points hike, will be enough to achieve that for the UK and obviously the cumulative tightening is playing a big role.’
Sterling could also be seeing any losses cushioned by the final reading of April’s PMI for the UK’s dominant services sector. The reading confirmed the fastest rise in activity for 12 months. This came alongside evidence of persistent inflationary pressures that may be prompting BoE bets today.
The opening of local elections polls across most of the UK may be weighing on Sterling, however.
GBP/ZAR Exchange Rate Forecast: Will BoE Rate Hike Bets Boost Pound?
The Pound will see a sparse data calendar over the rest of the week. Sterling could be affected by domestic headwinds as the UK awaits the results of multiple local elections.
BoE rate hike bets may also inspire movement in GBP this week. If markets continue to coalesce around a 25bps rate hike, then the Pound could rise.
For the South African Rand, the prospect of additional interest rate increases from the SARB may push the currency higher this week.
Expectations for an ongoing pause in policy tightening from the US Federal Reserve may also bolster ZAR.
On the other hand, the prospect of rolling stage 6 load shedding could dampen enthusiasm for the emerging market currency.