Pound South African Rand (GBP/ZAR) Exchange Rate Narrows amid Dovish BoE Comments
Article updated 15:30, 06/09/2023:
The Pound South African Rand (GBP/ZAR) exchange rate is narrowing this afternoon, following dovish comments from Bank of England (BoE) Governor Andrew Bailey.
During the afternoon’s testimony to the UK Treasury, Bailey predicted a ‘marked fall’ in inflation over 2023.
Bailey stated:
‘As I’ve said a number of times, I think it [the fall] will be quite marked by the end of this year. The question now is, as headline inflation comes down and people become more confident that it will come down… will we see inflation expectations continue to come down too, and be reflected in wage bargaining?’
He further commented that the BoE were nearer to the end of the current tightening cycle.
His comments sent Sterling plunging against most major currencies, but prompted narrow trade against the risk-sensitive South African Rand.
At the time of writing, GBP/ZAR is trading at around ZAR24.0754, showing little movement from the morning’s opening rates.
Original article continues below:
Pound South African Rand (GBP/ZAR) Exchange Rate Rises as Load Shedding Dents Rand
The Pound South African Rand (GBP/ZAR) exchange rate is strengthening this morning, as the return of load shedding weighs on ZAR.
At the time of writing, GBP/ZAR is trading at around ZAR24.1563, rising by just over 0.3% from the morning’s opening rates.
South African Rand (ZAR) Dampened by Return of Load Shedding
The South African Rand (ZAR) is being undermined today by the return of stage 6 load shedding programmes.
On Tuesday, Eskom announced that rolling blackouts would occur until further notice, as emergency repairs were carried out on failing generators.
This countered the positivity brought about by yesterday’s upbeat private sector index data, which indicated economic growth.
Load shedding remains troublesome for the South African economy, as it affects the ability of businesses to function.
Pound (GBP) Struggles as Outlook Darkens
The Pound (GBP) is struggling to attract firm support this morning, despite strengthening against the Rand. This comes as the UK economic outlook continues to darken, with concerns over economic fragility weighing heavily.
Earlier, the British Chambers of Commerce (BCC) warned that while the UK would dodge a technical recession, growth would flatline. As such, this would feel like a recession to households across the country.
Furthermore, activity was predicted to remain weak for the next two years, and with short term movement to remain muted.
Vicky Pryce, Senior Member of the BCC Economic Advisory Council, commented:
‘The BCC’s latest forecast shows the UK economy is continuing to teeter on the edge of a recession. But the fact is, that with growth predicted to hover so close to zero for three years, it will still feel a lot like one for most people and businesses.
The impact this will have on consumer spending, coupled with a poor trade performance, will only generate more uncertainty for firms.’
The concerns around consumer spending power were further compounded by a report from the Resolution Foundation. The thinktank warned that household incomes could be 4% lower in 2024-2025 than they were in 2019-20.
With this in mind, GBP investors remain worried about the UK economic outlook, as we move toward a period of high interest rates and low growth.
GBP/ZAR Exchange Rate Forecast: BoE Treasury Hearing in Focus
Looking ahead for the Pound, further movement may come this afternoon when the Bank of England begins to speak at the Treasury Committee hearings. If the BoE reiterate a hawkish path forward, Sterling could strengthen.
Beyond this, the data calendar is set to become light through to the end of the week. Because of this, the Pound may be left vulnerable to shifts in risk appetite. Bullish trade may boost Sterling due to its increasingly risk-on nature.
For the Rand, tomorrow sees the publication of the latest South African business confidence index. Currently, economists are forecasting that confidence will fall from 27 to 23.
This could weigh on ZAR rates, as it would indicate a deterioration in sentiment amongst businesses.