Pound South African Rand (GBP/ZAR) Exchange Rate Slips to Two-Week Low on UK GDP Slump

Pound South African Rand Exchange Rate Undermined by GDP Disappointment

The Pound South African Rand (GBP/ZAR) exchange rate is on the defensive so far this morning. The pairing being pressured by the UK’s lacklustre GDP figures.

At the time of writing the Pound South African Rand exchange rate is trading at around ZAR23.5941. Down roughly 0.3% from this morning’s opening rate.

Pound (GBP) Stumbles on Underwhelming UK GDP Print

The Pound (GBP) faces headwinds this morning, following the publication of the UK’s latest GDP figures.

According to the Office for National Statistics (ONS), the UK economy suffered a 0.5% month-on-month contraction in July. This was a sharp fall from June’s 0.5% expansion and below forecasts for a more modest 0.2% decline.

The ONS attributed July’s slump to the wet weather and impact of industrial action. With 281,000 working days being lost to strikes.

GBP exchange rates unsurprisingly softened following the GDP release. As this is yet another sign that the UK economy is losing momentum.

Paul Dales, chief UK economist at Capital Economics, suggests that July’s much weaker-than-expected figures ‘could mean that the mild recession we have been expecting has begun’.

Despite the possible recession risks, GBP investors do not believe this will deter the Bank of England (BoE) from raising interest rates next month.

Dales, continues:

‘[The] data suggest GDP growth in Q3 as a whole is likely to fall well short of the Bank of England’s +0.4% q/q forecast. Even so, the strength of wage growth and the stickiness of core inflation suggests to us the bank will pull the interest rate trigger once more at the policy meeting next Thursday.’

This sentiment appears to have helped to cap the Pound’s losses this morning.

South African Rand (ZAR) Tempered as Power Cuts Ramp Up Again

The South African Rand (ZAR) is also facing resistance this morning, amid the news that ailing state utility, Eskom is implementing Stage 6 load shedding measures until further notice.

The ramping up of the scheduled poor cuts, comes amid a delay to reopening several generation units.

The rolling blackouts continue to take a toll on the Rand, amid concerns they are severely hampering economic activity in the country.

Pound South African Rand Exchange Rate Forecast: US Inflation to Inject Volatility into GBP/ZAR?

Coming up, the publication of the latest US consumer price index could inject some volatility into the Pound South African Rand (GBP/ZAR) exchange rate later this afternoon.

August’s CPI figures are forecast to report US headline inflation accelerated from 3.2% to 3.6%. Another rise in inflation would suggest the Federal Reserve may need to take more action to ensure inflation returns to its 2% target.

In addition to triggering an uptick in the US Dollar (USD) this would also stoke concerns about the impact of higher US interest rates on global growth. Factors which might both weigh on the Rand.

On the other hand, an expected drop in core inflation could weaken Fed rate expectations and bolster ZAR exchange rates.

Matthew Andrews

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