Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Falls

February 17, 2015 - Written by Ben Hughes

STORY LINK Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Falls

The Pound weakened against the South African Rand after British data showed that consumer price inflation fell to its lowest level since 1989, adding to concerns that inflation will enter deflationary territory over the coming months.

The data showed that Consumer price inflation (CPI) fell last month to its lowest level since records began as falling oil prices combined with dropping food prices. According to the London based Office for National Statistics (ONS), annual CPI declined to 0.3% in the first month of the year as forecast by economists.

The Pound dropped against all of its most traded peers as a fall in inflation is likely to put pressure on the Bank of England (BOE) to delay raising interest rates. For that to happen however, the bank said that price declines would have to spread to other sectors.

Despite the fall in the CPI figure the Core Inflation rate, which strips out volatile things like food and energy prices rose by 1.4% last month, the highest figure seen in three-months.

‘There is certainly no sign of the systemic deflation that took a grip on Japan in the 1990’s. Domestic demand growth remains relatively buoyant,’ said John Hawksworth, the chief economist at accountancy firm PwC.

BoE Governor Mark Carney said inflation would probably soon fall below zero due to tumbling oil prices, but the Bank also forecast a rebound to its 2% inflation target in about two years' time.

Factory gate prices fell 1.8 percent in the year to January, the biggest decline since records began in 1997.

The South African Rand meanwhile is forecast to go back onto the retreat over the course of the week as the nation’s weak fundamentals offset an anticipated end of year boost to the currency.

‘We are looking at more short-term weakness. The fundamental backdrop is still pretty weak and that’s reflected in the numbers we saw last week,’ said a trader.

The Rand often strengthens towards the months end due to exporter demand for the currency but the poor backdrop and risks associated with the ANCs' elective conference this month are likely to dampen sentiment, the trader added.

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