Pound South African Rand (GBP/ZAR) exchange rate spikes as BoE takes hawkish stance
Article updated 12:10, 1/2/2024:
The Pound South African Rand (GBP/ZAR) exchange rate is on the march today, following the latest interest rate decision from the Bank of England (BoE).
While the BoE signalled that its tightening cycle was over, the bank forecast an acceleration in inflation during 2025. Additionally, the BoE’s monetary policy report highlighted that services inflation remained too high.
The BoE’s accompanying summary stated:
‘Although services price inflation and wage growth have fallen by somewhat more than expected, key indicators of inflation persistence remain elevated. As a result, monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit.’
As such, the Pound is gaining ground against some peers, such as the South African Rand. At the time of writing, GBP/ZAR is trading at around ZAR23.7521, an increase of just over 0.4% from the morning’s opening rates.
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Pound South African Rand (GBP/ZAR) exchange rate listless as markets eye BoE decision
The Pound South African Rand (GBP/ZAR) exchange rate is wavering this morning, as markets anticipate the Bank of England’s (BoE) interest rate decision.
At the time of writing, GBP/ZAR is trading at around ZAR23.6445, showing little movement from the morning’s opening rates.
Pound (GBP) mixed ahead of BoE announcement
The Pound (GBP) is trading in a mixed capacity today, as anticipation builds for the latest Bank of England interest rate decision.
At noon, the BoE is expected to keep interest rates unchanged, but also signal that its tightening cycle has drawn to a close.
This would mean a fourth consecutive decision to hold rates, keeping them at a 16-year high of 5.25%. The question remains, however, over when the BoE will begin to loosen its monetary policy, and to what extent.
Ben Laidler, Global Markets Strategist at eToro, commented:
‘Enough inflation-fighting progress has been made for the BoE to begin opening the door to lower interest rates starting this summer, with four cuts likely in the second half. This would lag behind the US Fed and Europe’s ECB but be welcome, and borrowers have already started to benefit from the fall in bond yields.’
As the BoE has been one of the most hawkish central banks, this may come later than its compatriots.
Inflation also appears to be stickier than expected, which could lead to push back from BoE policymakers today. If this occurs, the Pound may strengthen over today’s session.
South African Rand (ZAR) undermined as Eskom resumes stage three load shedding
The South African Rand (ZAR) is struggling to find support this morning, following news that Eskom will resume load shedding.
South Africa’s main power utility company announced that stage three load shedding will be implemented until further notice. Recently, Eskom aimed to drop down to stage two in the mornings.
Eskom stated that:
‘Due to the need to replenish emergency reserves and insufficient available generation capacity, stage 3 load-shedding will continue to be implemented until further notice.’
This is likely prompting concerns about the South African economy, as load shedding has had a notable impact on activity in recent months.
Because of this, the Rand appears unable to capitalise on the morning’s risk-on impulse despite its risk-sensitive nature.
Pound South African Rand exchange rate forecast: Light data calendar to limit movement?
Looking ahead for the Pound, data releases are set to thin out through to the end of the week. This may leave Sterling vulnerable against shifts in the market mood, and to continued analysis of today’s BoE decision.
As an increasingly risky currency, a shift towards bullish trade could lift the Pound above safer rivals.
For the South African Rand, a similar lack of data may keep its movements limited. However, due to the recent resumption of stage three load shedding, ZAR may weaken in the short term.
However, as the Rand is acutely risk-sensitive, the lack of data leaves it exposed to shifts in the market mood. If trading conditions worsen, ZAR may slip against its peers.