Pound South African Rand (GBP/ZAR) Exchange Rate Rises to Three-Week High
(Updated 16:55, 03/08/23) The Pound South African Rand (GBP/ZAR) exchange rate hit a three-week high today as this week’s selloff in the South African Rand (ZAR) gathers pace.
The risk-sensitive Rand has been under notable pressure this week, as risk aversion sweeps markets. The gloomy mood came amid global growth concerns and the US government’s credit rating being downgraded by Fitch.
ZAR exchange rates continued to spiral lower today, with the Rand hitting a three-week low against the Pound (GBP).
At the time of writing, the GBP/ZAR exchange rate is at ZAR23.7945, up 1.5% on the day and 4.6% on the week.
Looking ahead, Friday’s US non-farm payrolls could trigger more volatility. Economists expect the US to have added 200,000 jobs in July, relatively low compared to recent figures. However, after the ADP report beat forecasts earlier this week, there’s a chance it could come in hot.
If the data does beat forecasts, bets on more Federal Reserve rate hikes could further sour the market mood, leading to likely losses for the Rand.
Conversely, a weaker reading could cheer markets and help ZAR recover ground.
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Pound South African Rand (GBP/ZAR) Exchange Rate Fluctuates Higher despite Dovish BoE
(Updated 15:00 03/08/23) The Pound South African Rand (GBP/ZAR) exchange rate saw some volatility today, but managed to zigzag higher to hit a fresh two-week high.
The upside in the Pound (GBP) came despite a dovish interest rate decision from the Bank of England (BoE). The British central bank opted for a smaller 25bps hike, while changes in its language indicated that interest rates may be near their peak.
The BoE said that it expects inflation to fall ‘significantly’ by the end of the year, suggesting that further interest rate rises may not be needed. Furthermore, BoE Governor Andrew Bailey said it was important for the bank to keep rates ‘sufficiently restrictive for sufficiently long’, again implying that they may have already peaked.
While Sterling fell against many of its other peers, it managed to move higher against the South African Rand (ZAR), which was facing headwinds of its own.
A steep contraction in South African private sector activity, paired with widespread risk aversion, is putting heavy pressure on the risk-sensitive Rand.
At the time of writing, the GBP/ZAR exchange rate is trading at around ZAR23.7532, its highest levels since mid-July.
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Pound South African Rand (GBP/ZAR) Exchange Rate Jumps as Rand Faces Headwinds
The Pound South African Rand (GBP/ZAR) exchange rate surged higher this morning, as a risk-off mood and weak PMI data pressure the South African Rand (ZAR) ahead of the Bank of England (BoE) interest rate decision.
At the time of writing, the GBP/ZAR exchange rate is trading at ZAR23.6565, at its highest levels in over two weeks and up 0.8% on the day.
South African Rand (ZAR) Slides amid Risk Aversion and Weak PMI
The Rand slumped at the start of today’s European session, as a bearish tone heaps pressure on the risk-sensitive currency.
Markets have been in a state of anxiety since Fitch downgraded the US government’s credit rating on Tuesday night. The surprise move triggered a rout in global markets, and equities are still deeply in the red today.
Furthermore, this morning’s PMI results revealed a deepening contraction in private sector activity. The score dropped from 48.7 to 48.2 – in line with expectations. This was the fifth straight month of decline and the second-fastest pace of contraction in two years.
Concerns about South Africa’s domestic economy and wider global fears are both weighing heavily on the Rand today.
Pound (GBP) Subdued Ahead of BoE Decision
Meanwhile, the Pound’s (GBP) movement seems somewhat limited ahead of the BoE decision later today, which could be capping GBP/ZAR’s gains. GBP investors are unlikely to want to reposition ahead of the meeting.
While a 25bps rate hike is fully priced in, there remains the outside chance of a larger 50bps move.
Victoria Scholar, Head of Investment at interactive investor, commented:
‘Monetary policy is a notoriously blunt tool and is therefore not good at tinkering around the edges. The choice between 25bps and 50bps today is more about signalling how concerned the central bank is about inflation and growth.’
Meanwhile, Steve Mathews, a fund manager at Canada Life Asset Management, believes there will be a split vote between 25bps and 50bps, but that the hawks will ultimately prevail.
‘It is unlikely that there has been enough time for the last hike to have had a lasting impact and the BoE, wary of being out of sync with the US and Europe, will want to front-load their remaining moves for the greatest impact. With the resident dove, Silvana Tenreyro, leaving the committee there will be a more hawkish tone to the meeting and this could be the deciding factor in what will likely be a split vote.’
In addition, there’s some uncertainty around the tone of the BoE’s forward guidance. UK inflation remains stubbornly high, but many are worried about the cumulative impact of rising interest rates and higher prices.
A rate hike takes roughly 18 months to fully feed through into the economy, so rate increases over a year and a half ago may now only be beginning to have an impact. This could prompt a more cautious tone from the BoE.
GBP ZAR Exchange Rate Forecast: BoE Decision to See Sterling Rise Higher?
Looking ahead, the BoE decision is of course the focus for today’s session.
If the bank does surprise markets and opt for a larger half-point hike – which some analysts are forecasting – we could see the Pound surge higher. However, a quarter-point rise is more likely.
Immediately after the decision, the focus then shifts to the bank’s forward guidance. Should the BoE signal that more interest rate rises are likely in the coming months, this could also lend Sterling support.
However, with hawkish expectations rather high, it leaves a lot of room for disappointment. If the BoE sounds more cautious or dovish than anticipated, Sterling could slide.