GBP/ZAR Continues Climbing as Key US Data Impresses
(Updated 17:30, 31/08/2023) The Pound South African Rand (GBP/ZAR) exchange rate rose higher still this afternoon, despite upbeat US data and an impressive South African trade balance.
South Africa’s balance of trade well for July well exceeded expectations, printing at a ZAR15.96bn surplus rather than a ZAR1.25bn deficit as forecast. According to the South African Revenue Service (SARS), exports rose 4.6% over a month, mainly boosted by shipments of vehicles and transport equipment as well as vegetable products.
Shortly after this release, key US data was revealed: the US PCE core price index – the Federal Reserve’s preferred measure of inflation – printed as expected in the year to July. The news boosted the US Dollar (USD), suggesting that the central bank’s policy tightening measures were working to prevent further inflation hikes: positive news for the US economy generally increases risk appetite given its links to other global economies.
Nevertheless, the Rand – a risk sensitive currency – failed to benefit from the risk-on mood.
Original article continues below:
Pound South African Rand (GBP/ZAR) Exchange Rate Firms on Pill Comments
The Pound South African Rand (GBP/ZAR) exchange rate continues to climb this morning as hawkish comments from the Bank of England (BoE)’s Chief Economist, Huw Pill, make the case for further monetary policy tightening. Meanwhile, variable risk appetite keeps the lid on Rand (ZAR) trading, as the currency benefits most from a risk-on environment.
At the time of writing, GBP/ZAR is trading at ZAR23.8977, approximately 0.7% higher than this time yesterday.
Pound (GBP) Rally Eases, Pill Comments Provide Renewed Support
Following yesterday’s impressive rally in Pound (GBP) exchange rates, Sterling traders have taken their foot off the accelerator today. Nevertheless, upbeat comments from the BoE’s Huw Pill ensure ongoing support for the currency.
The central bank’s Chief Economist gave a hawkish speech this morning, to the effect that further interest rate hikes from the Monetary Policy Committee (MPC) may be on the cards. Pill told markets there is no room for complacency when it comes to taming inflationary pressures, adding:
‘There are cases for caution on inflation despite a fall in the headline rate; some indicators of inflation have developed less benignly of late.
We need to see the job through on inflation… There is a lot of policy in the pipeline to come through.’
Playing devil’s advocate, Pill acknowledged ‘the possibility of doing too much to fight inflation’; yet the majority of investors interpreted his comments in a bullish light.
Also buoying the Pound this morning is a bullish market mood and strong business confidence according to Lloyds Bank business barometer. Corporations seem confident about the economic outlook: the barometer jumped in August to its highest level since the Russian invasion of Ukraine.
South African Rand (ZAR) Tumbles on Choppy Trading Conditions
The South African Rand has weakened against the majority of its peers this morning, potentially limited by unsteady risk appetite.
Weakness in the US Dollar (USD) yesterday following a surprise fall in ADP employment data triggered volatility in the currency markets, with investors flocking to alternative safe-haven currencies such as the Japanese Yen (JPY).
A bearish attitude persists into today’s European session with mixed stimuli giving opposing signals. While the latest PMI releases for China suggest that business activity in the world’s second largest economy is rebounding, general economic conditions continued to worsen.
Moreover, in the wake of key data from the Eurozone – and in anticipation of the US core price index – traders are readjusting their positions. Inflation in the bloc has exceeded expectations for the month of August, illustrating the ongoing dilemma faced by global central banks.
On the other hand, the South African Rand may yet find support in its gold-linked nature. As the value of the metal commodity increases, ZAR is set to prosper due to the economy’s reliance on gold exports.
GBP/ZAR Exchange Rate Forecast: US Data to Direct Currency Movements?
Later today, the Pound South African Rand exchange rate may trade according to the US PCE price index. The Federal Reserve’s preferred measure of inflation, the release has potential to rock USD exchange rates with a knock-on effect on the rest of the currency market.
South African data may also influence GBP/ZAR: if the country’s trade deficit eases to ZAR-1.25bn as forecast, the Rand may enjoy a boost. ZAR’s climb against the Pound could be limited, however, if the BoE is considered likely to align its strategy with the US Federal Reserve at its next policy meeting.
Elsewhere, risk sentiment could play a role in the exchange rate’s performance. If market sentiment turns decidedly bearish, GBP/ZAR is likely to firm, given the Rand’s risk-off status.