GBP to ZAR Exchange Rate Climbs on Poor South African Data Ahead of South African Reserve Bank

January 16, 2020 – Written by Tim Boyer

Despite rising Bank of England (BoE) interest rate cut bets and higher market demand for currencies correlated to trade and risk, the British Pound to South African Rand (GBP/ZAR) exchange rate has recovered to above the week’s opening levels today. The Pound is steadying ahead of tomorrow’s key UK retail sales report, while the South African Rand continues to face pressure from concerns over South Africa’s economic outlook.

After opening this week at the level of 18.76, GBP/ZAR briefly tumbled on Pound weakness. However, GBP/ZAR losses were short-lived due to the Rand’s own broad weakness, and the pair quickly recovered most of Monday’s losses.

GBP/ZAR has been gradually edging higher since Tuesday, and at the time of writing on Thursday the pair is trending near a weekly high of 18.79.

While GBP/ZAR is just barely above the week’s opening levels, the pair could see bigger movement this afternoon if the South African Reserve Bank’s (SARB) latest policy decision surprises investors.

GBP Exchange Rates Lack Drive as Investors Anticipate Tomorrow’s Retail Report

While the Pound has climbed against the South African Rand this week, this has been more due to broad weakness in the South African Rand than any notable strength in Sterling.

In fact, the Pound is having a fairly bearish week as Bank of England (BoE) interest rate cut bets rise.

Just over a week ago, the possibility of a January interest rate cut from the BoE was not really a significant possibility on the market radar. However, that has changed.

Last week and over the weekend, multiple BoE policymakers indicated they would be willing to vote for looser monetary policy unless Britain’s economy showed stronger signs of recovering from months of political and Brexit uncertainty.

This week’s data has only caused BoE interest rate cut bets to soar though. Poor UK growth, production and inflation stats left markets placing the chances of a rate cut this month at 60%.

Some analysts have become convinced that BoE easing is now quite likely in the coming months overall. According to Kit Juckes, Head of FX Strategy at Societe Generale:

‘The number of doves is building and the data is supportive of rate cuts; so it’s a question of at which meeting,’

Other analysts are even speculating a possible need for as many as two rate cuts this year.

Overall, Sterling steadied in anticipation of tomorrow’s final key UK dataset of the week, as the retail sales stats could cause further BoE interest rate speculation.

ZAR Exchange Rates Struggle to Hold Ground as South African Data Disappoints

The South African Rand has seen volatile movement in recent weeks, as it has benefitted from higher market risk-sentiment, but has been weakened by South Africa’s concerning economic outlook.

This week has been much the same story so far. As the US and China formally signed a ‘phase one’ trade deal, investors were more eager to buy currencies correlated to risk and trade like the South African Rand.

However, the South African Rand has been unable to capitalise on this risk-on movement, as investors remain anxious about South Africa’s economy.

While yesterday’s South African retail sales results beat forecasts, analysts continued to warn about the effect of weakening consumer confidence in South Africa.

On top of this, South Africa’s November mining production results were highly concerning today, with deeper than expected contractions in both monthly and yearly prints.

According to Bianca Botes, Treasury Partner at Peregrine Treasury Solutions, Rand investors are hesitant to move much on the currency as they anticipate a notable development:

‘The currency has remained in a tight range as markets await a new catalyst event,

The SARB is likely to keep interest rates on hold today, although the tone and any indication of future rate cuts will be monitored closely.’

GBP/ZAR Exchange Rate Forecast: Central Bank Speculation in Focus

The Pound to South African Rand exchange rate could still end the week higher or lower – that largely depends on how market central bank speculation develops over the coming days.

This afternoon, the South African Reserve Bank (SARB) will hold its January policy decision. The bank is not expected to make any changes to monetary policy, but any shifts in tone the bank takes regarding South Africa’s economy could be influential.

If the SARB is more dovish than expected on South Africa’s economy, GBP/ZAR could climb further more easily.

However, the Pound could see a late week shift in movement in reaction to tomorrow’s key UK retail sales results.

If the retail data follows this week’s trend of falling short of expectations, Bank of England (BoE) interest rate cut bets will rise and the Pound will see fresh losses.

The Pound to South African Rand exchange rate could also be influenced by any notable US-China trade developments in the coming sessions.

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TAGS: Pound Rand Forecasts