GBP/ZAR exchange rate crashes as UK unemployment rises
The Pound South African Rand (GBP/ZAR) exchange rate has dropped to its lowest point in almost three weeks, as an unexpected rise in UK unemployment weighs upon the Pound (GBP). Meanwhile, positive risk sentiment supports the South African Rand (ZAR) alongside a recent uptick in gold prices.
At the time of writing, GBP/ZAR is trading at R23.7564, more than 1% lower than this time yesterday.
Pound (GBP) dented by January jobs report
The Pound is trending down against its peers today as Sterling sentiment is weakened by an unexpected rise in UK unemployment.
January’s jobs data revealed that unemployment increased to 3.9% in the first month of 2024; the number of individuals unemployed for over 12 months increased in the latest quarter, according to the Office for National Statistics (ONS).
Possibly capping losses for GBP, however, is a smaller-than-forecast increase in average earnings across the three months to January, on an annualised basis. Excluding bonuses, wage growth amounted to 6.1% rather than the 6.2% anticipated.
The Bank of England (BoE) has stipulated that wage growth remains a barrier to progress in tackling inflation; a continued easing of the rise in average earnings is likely to come as some relief.
Nevertheless, the data is unlikely to significantly alter the BoE’s hawkish inclination to keep interest rates on hold for the time being. Paul Dales, chief UK economist at Capital Economics, confirms:
‘The easing in wage growth in January is probably still a bit too slow for the Bank of England’s liking. But there are encouraging signs that a more marked slowdown is just around the corner and that an interest rate cut in June is possible.’
This afternoon’s speech from BoE official Nick Butt may shed further light upon the central bank’s outlook ahead; in the meantime, Sterling is likely to remain downcast as investors continue to digest this morning’s release.
South African Rand (ZAR) soars on export prices, bullish sentiment
The South African Rand is trading sharply upward against its peers today, propelled higher by a prolonged increase in gold prices alongside a risk-on mood.
A risk-sensitive currency, bullish momentum invariably supports the Rand while volatile trading conditions apply headwinds. Moreover, the currency’s commodity-linked status ties its performance to the price of gold.
The value of the metal has increased steadily since mid-February, buoying ZAR despite mixed economic data. South Africa’s current account deficit widened by more than expected in Q4 2023, and net foreign reserves fell in February; yet experts at ETM Analytics observed on Friday:
‘The rand has enjoyed a stellar week so far, capitalising on some appreciation that began last week.’
Weak economic growth in South Africa remains a concern and could weigh upon the Rand in the near future, alongside weakness in state-owned enterprises such as power utility Eskom and logistics firm Transnet.
The country’s energy crisis has been in focus recently, although the South African Electricity Minister Kgosientsho Ramokgopa jokingly announced at an infrastructure conference earlier today that there will not be a need for the energy ministry by the end of the year, as South Africa will get be receiving an extra 6,000 megawatts of supply from state sources by the end of 2024.
GBP/ZAR exchange rate forecast: US data to influence trade?
The Pound South African Rand exchange rate may be affected later today by the results of February’s US inflation data.
The key release from the world’s largest economy is likely to have knock-on effects across the currency market, as waning inflationary pressures imply a reduced need for tight monetary policy from the Federal Reserve. If the Fed cuts interest rates, lower borrowing costs in the US will feed through to other economies.
On the other hand, if the data exceeds forecasts, demonstrating that price pressures remain persistent, risk sentiment could turn bearish – depressing perceived-riskier currencies including the South African Rand. Thus, GBP/ZAR may find support.