The Pound South African Rand (GBP/ZAR) exchange rate slumped last week as a plunge in the US Dollar (USD) bolstered market risk appetite.
What’s Been Happening: Pound South African Rand Tumbles in Risk-Positive Trade
The South African Rand (ZAR) enjoyed strong support last week as demand for the emerging market currency was underpinned by a prevailing risk-on mood.
This was primarily linked to a sharp pullback in the US Dollar as well as weakened Federal Reserve interest rate expectations, in light of a softer-than-expected US inflation print.
However, the Rand’s bullish run came to an abrupt halt at the end of the week after State utility Eskom announced it would need to extend its load shedding measures over the weekend.
Meanwhile, the Pound (GBP) was initially able to hold its ground against the Rand last week following the publication of then UK’s latest jobs report. A record rise in wage growth further reinforced Bank of England (BoE) interest rate expectations.
However, a bout of profit taking then saw Sterling tumble in mid-week trade. With these losses being tempered slightly by stronger-than-expected UK GDP figures.
Three Things to Watch Out for This Week
- UK Inflation
The UK’s consumer price index will be in the spotlight this week. If UK inflation continues to run hot this may boost both BoE rate hike bets and the Pound. But could recession fears limit Sterling’s upside potential?
- UK Retail Sales
GBP exchange rates may also be influenced by the UK’s latest retail sales figures. A weakening of sales growth could dent the Pound.
- SARB Interest Rate Decision
The South African Reserve Bank (SARB) is widely expected to leave interest rates on hold this month. Could the decision inject some volatility into the Rand?
Pound South African Rand Forecast
The Pound South African Rand exchange rate is also likely to remain sensitive to market sentiment this week. Expect to see the recent downtrend in the pairing continue if the mood remains broadly upbeat.