The Pound South African Rand (GBP/ZAR) exchange rate crumpled last week, as South Africa’s economic outlook continued to improve.
What’s Been Happening: Improving Sentiment Supports ZAR
At the beginning of last week, the South African Rand (ZAR) may have seen its gains trimmed by political controversy. The South African government has been criticised for its lenience towards Russian President Vladimir Putin.
However, Wednesday brought a recovery in South African retail sales over April, which prompted support for the Rand. With the retail sector finally seeing increased sales after months of decline, the news cheered investors.
This upside was then reinforced throughout the week by continued jubilance over Eskom’s plans to pare back load shedding. As ongoing power cuts have been a significant weight on the South African economy, the news continued to underpin the Rand.
Meanwhile, the Pound (GBP) saw support over the last week as Bank of England (BoE) rate hike bets continued to escalate.
Between a decrease in unemployment, hotter-than-expected wage growth, and a 0.2% economic expansion, the stage was set for further tightening.
However, Sterling was unable to strengthen against the Rand, despite markets eyeing up to 132bps of further rate hikes.
Three Things to Watch Out for This Week
- BoE Interest Rate Decision
The BoE is scheduled to announce their latest interest rate decision on Thursday. While 25bps of tightening is expected, hawkish forward guidance could propel GBP higher.
- South African Inflation
The latest inflation data for South Africa is due to print on Wednesday, with both headline and core inflation forecast to cool. This could weaken ZAR by diminishing bets on further rate hikes from the South African Reserve Bank (SARB).
- UK Inflation
Coming on Wednesday, the latest UK inflation data is due to print. Will a hold in core inflation bring strength to Sterling?
GBP/ZAR Outlook
The Pound could see more direction on Friday, following the release of the latest retail sales data. Economists are anticipating a decline of 0.2% on a monthly basis, which could sap sentiment toward Sterling.