The Pound South African Rand (GBP/ZAR) exchange rate hit a seven-year high last week, as South African power utility Eskom forecast severe load-shedding measures over the winter.
What’s Been Happening: ZAR Tumbles amid Bleak Load Shedding Predictions
While the South African Rand (ZAR) began the week on a high note amid a cheery market mood, ZAR was unable to consolidate this.
On Wednesday, the Rand hit a three-year low and continued to plummet thereafter. Eskom predicted that load shedding over the winter months would be severe. This resulted in a sharp sell-off of government bonds.
Friday saw ZAR slip even lower, sliding to a seven-year low against the Pound (GBP). JPMorgan downgraded their economic forecasts in response to Eskom’s predictions, viewing the South African economy as likely to severely weaken.
Meanwhile, the Pound initially firmed before Wednesday’s 25bps hike from the Bank of England (BoE) rocked Sterling.
The accompanying forward guidance left the door open for additional hikes. However, BoE Governor Andrew Bailey made dovish comments, which prevented GBP from capitalising on the decision.
On Friday, initially the Pound enjoyed support amid reports that the UK economy had expanded in the first quarter, with the country seeming to have swerved a recession. However, these gains were capped by a shock 0.3% contraction in March.
Three Things to Watch Out for This Week
- BoE Governor Bailey Speech
Governor Bailey is due to speak on Wednesday. If he strikes a hawkish tone, GBP could strengthen amid renewed rate hike bets.
- SA Unemployment Rate
Later this morning, Q1’s unemployment data is due to print. A downtick is forecast, which may strengthen ZAR.
- Load Shedding
Any further developments in this area are likely to weigh heavily on the Rand. With load shedding taking place throughout South Africa, some areas have remained without power for longer than expected.
GBP/ZAR Outlook
Elsewhere, risk appetite may drive the pairing. With the Rand being substantially more sensitive to bearish trade, a souring market mood may lift GBP/ZAR.