Due to multiple disappointing South African ecostats over the past week, investors have become more concerned that South Africa’s economy will continue to struggle this year. The latest Federal Reserve news put additional pressure on risky emerging market currencies like the Rand, helping the British Pound to South African Rand (GBP/ZAR) exchange rate to easily advance.
The emerging market selloff continued throughout the week, giving the GBP/ZAR exchange rate its third consecutive week of gains. After opening at the level of 17.55, GBP/ZAR climbed and at the time of writing on Friday the pair was trending near a high of 17.88. This was the best GBP/ZAR level since December 2017 – six months ago.
GBP Benefits from Weak Rivals and UK Retail Hopes
While the Pound outlook has not notably improved over the last week, some solid UK retail sales results were enough to help the Pound hold its ground as many other currencies were impacted by Central Bank developments.
Sterling, on the other hand, was supported by hopes that UK household activity was improving.
May’s UK retail sales results were published on Thursday and came in above expectations in every major print.
The monthly retail sales figure only slipped from 1.8% to 1.3%, rather than the forecast 0.5%. Meanwhile, the year-on-year figure surged well above the forecast 2.4%, from 1.4% to 3.9%.
Still, analysts were mixed on the results with some suggesting it did not point towards a sustained improvement in retail activity.
This, as well as concerns about slowing UK wage growth and inflation results earlier in the week put a lid on Sterling gains.
According to Samuel Tombs from Pantheon Macroeconomics:
‘The jump in retail sales in May has all the hallmarks of a weather-related blip, rather than a sustainable pick-up in spending.
… The average level of non-food sales in the first five months of 2018 is exactly the same as in the last five months of 2017, so the underlying trend in sales still looks pretty flat.’
With the Bank of England (BoE) not meeting until next week though, investors remained firm on the British currency rather than selling it amid the Federal Reserve and European Central Bank (ECB) news.
Weak South African Data and Global Outlook Weigh on ZAR
The South African Rand remained unappealing due to numerous factors, both global and at home.
Global Central Bank developments left risky emerging market currencies like the South African Rand broadly unappealing.
The Federal Reserve hiked US interest rates and indicated that it could hike rates another two times before the end of the year, meaning four 2018 US rate hikes in total.
As the US monetary policy outlook becomes even tighter, investors become more and more hesitant to take risks.
The Rand has been especially unappealing in recent weeks, due to underwhelming South African data indicating that the nation’s economy is running out of steam this year.
South African retail sales slumped in April according to Wednesday’s report. The monthly figure came in at just -1.2% with the yearly figure falling from 4.6% to 0.5%.
Mining production was disappointing too, according to Thursday’s report. Mining contracted by -2% month-on-month and -4.3% year-on-year.
GBP/ZAR Forecast: South African Inflation and Bank of England Ahead
Next week’s economic calendar will be quiet, but the news that does come in will be highly influential and could certainly make an impact on the Pound to South African Rand (GBP/ZAR) exchange rate.
Wednesday will see the publication of South Africa’s key Consumer Price Index (CPI) results from May, as well as less influential UK industrial trends orders stats from June.
Rand investors are likely to react to the domestic inflation data, or further developments in global Central Bank or trade news.
As for Sterling, next week’s biggest event will be the Bank of England’s (BoE) June monetary policy decision – which will be held on Thursday.
If the bank indicates that its UK economic outlook is unchanged and still optimistic despite last week’s slowdown in UK price pressures, the Pound to South African Rand (GBP/ZAR) exchange rate may be in for another week of gains.
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TAGS: Pound Rand Forecasts