The Pound South African Rand (GBP/ZAR) exchange rate slumped last week, with the pairing striking its worst levels since the start of August.
What’s Been Happening: GBP/ZAR Knocked by Risk-On Flows
The outbreak of violence between Hamas and Israel, initially saw GBP/ZAR tick higher last week. However, these gains proved short lived as pullback in the US Dollar (USD), then kicked off what would be a week-long rally in the South African Rand (ZAR).
Meanwhile, the Pound (GBP) faced headwinds in the first half of the week as the International Monetary Fund (IMF) latest forecasts suggested the UK will be the slowest-growing G7 economy in 2024.
Waning Federal Reserve interest rate expectations allowed the Rand to maintain a positive trajectory in, despite escalating tensions in the Middle East.
The publication of the UK’s latest GDP figures then piled more pressure on Sterling in the second half of the week. While August’s figures showed the UK economy expanded by 0.2% as expected, it was not enough to ease fears the UK may be at risk of slipping into a recession.
Three Things to Watch Out for This Week
- UK Inflation
The UK’s consumer price index will be centre stage this week. September’s CPI figures will be key in determining whether the Bank of England (BoE) is likely to raise interest rates again next month. Another slowing of inflation could weaken rate hike expectations and drag on Sterling
- UK Retail Sales
The UK’s latest retail sales figures are expected to report sales growth slumped last month. Could this sap Sterling sentiment at the end of the week?
- South African Inflation
South Africa’s own CPI release will be in focus for ZAR investors this week. Inflation is forecast to have accelerated last month. Will this bolster South African Reserve Bank (SARB) rate hike expectations and lift the Rand?
GBP/ZAR Forecast
In addition to a number of high-impact data releases, movement in GBP/ZAR may also be influenced by geopolitics this week. As the events in the Middle East could lead investors to shun the emerging market rand if tensions in the region escalate.