The Pound South African Rand (GBP/ZAR) exchange rate pressed lower last week, amid improving risk appetite and a positive response to South Africa’s mid-term budget statement.
What’s Been Happening: GBP/ZAR Undermined by Risk-On Flows
The South African Rand (ZAR) opened last week on the defensive against the Pound (GBP). A cautious mood led investors to favour Sterling over ZAR.
However, the Rand was quick to find its feet, firming ahead of the publication of South Africa’s mid-term budget statement.
GBP/ZAR came under further pressure amid a broadly positive response to the budget. While a weakening of the US Dollar (USD), following the Federal Reserve’s interest rate decision, also helped to underpin support for the Rand.
Meanwhile, the Pound fluctuated on Thursday in response to the Bank of England’s (BoE) own rate decision. While the BoE left rates on hold, as forecast, the split in the Monetary Policy Committee proved more hawkish that expected, allowing Sterling to recoup its initial losses.
After striking a seven-month low, GBP/ZAR then managed to mount a recovery at the end of the week. This appeared driven by bets that the BoE might still be open to one more interest rate hike.
Three Things to Watch Out for This Week
- UK GDP
The UK’s latest GDP figures will be in the spotlight this week. The preliminary estimate for the third quarter is forecast to show a report a contraction in growth. Will this drag the Pound sharply lower at the end of the week?
- SA Manufacturing Production
An expected slowdown in South African manufacturing production in September could act as a headwind for the Rand this week.
- Risk Sentiment
The GBP/ZAR exchange rate is likely to remain highly sensitive to market risk appetite this week. Expect the pairing to strengthen if the mood sours.
GBP/ZAR Forecast
Expect to see GBP/ZAR remain volatile this week. With an expected contraction in UK GDP and potential fallout from China’s latest inflation figures likely to stoke uncertainty in markets.