Pound South African rand (GBP/ZAR) exchange rate slips amid persistent South African inflation
The pound South African rand (GBP/ZAR) exchange rate is falling this morning, as South African inflation remains unchanged.
At the time of writing, GBP/ZAR is trading at around ZAR22.8393, a fall of just under 0.4% from today’s opening rates.
South African rand (ZAR) rallies as inflation remains elevated
The South African rand (ZAR) is rising this morning, following the latest inflation data. Headline inflation printed at 5.2% in May, showing no change from April’s reading.
This cemented a delay to interest rate cuts from the South African Reserve Bank (SARB), strengthening the rand.
Furthermore, ZAR is likely maintaining this strength this morning as the currency carries forward its momentum from yesterday.
On Tuesday, South African’s National Assembly sat for the first time after Cyril Ramaphosa was re-elected president.
Five parties across South Africa agreed to join a government of national unity after the African National Congress (ANC) lost its majority. This includes the pro-business Democratic Alliance, a favourite for ZAR investors.
Pound (GBP) firms despite cooling inflation
The pound (GBP) is broadly firming this morning, following the release of the consumer price index for May.
Headline inflation cooled, as expected, to the Bank of England’s (BoE) target rate of 2%. This marked a fall from April’s reading of 2.3%, and suggests that UK inflationary pressures may be starting to taper off.
However, Sterling is firming in the wake of the release as the latest UK services inflation data printed above forecasts. In May, the reading printed at 5.7%, above the BoE’s expectations of a 5.3% print.
James Smith, Developed Markets Economist at ING, commented:
‘Indeed at 5.7%, it’s now 0.4 percentage points above the Bank’s forecast from the May Monetary Policy Report. That all but confirms the BoE will keep rates on hold tomorrow. But it doesn’t necessarily change the game for August’s meeting.’
By confirming an interest rate hold tomorrow, signs of persistent services inflation are prompting support for GBP.
However, any gains may be limited in scope as it still shows that the BoE is likely to begin cutting interest rates soon.
Pound South African rand exchange rate forecast: BoE rate decision in focus
Looking ahead for the pound, the Bank of England are due to deliver its latest interest rate decision tomorrow.
While no change is expected in interest rates, investors are likely to focus on the makeup of votes and meeting minutes. If the votes shift closer towards more members voting for a cut, GBP may struggle.
Furthermore, if the meeting minutes skew dovish in the wake of inflation hitting 2%, Sterling may see additional weakness. This could push investors to fully dial in bets on a summer rate cut, which could send GBP spiralling.
This is followed by the latest UK retail sales data on Friday. In May, sales are anticipated to have increased by 1.5%, a clear improvement over a reading of -2.3% in April.
This could strengthen the pound by suggesting resilient consumer spending, and may further suggest easing cost-of-living pressures.
For the rand, data releases are few and far between. This could leave the highly volatile currency exposed to any shifts in risk appetite. A move towards downbeat trade could weaken ZAR exchange rates.