Pound to South African Rand Softer after UK Inflation Data

STORY LINK Pound to South African Rand Softer after UK Inflation Data

Pound to South African Rand Softer after UK Inflation Data

The Pound Sterling weakened against the majority of its most traded peers including the South African Rand after economic data released by the London based Office for National Statistics (ONS) showed that inflation in the UK held steady at zero in March. The figure remained at the lowest level since records began back in 1989, and was the joint weakest price growth seen since 1960.

Economists had widely forecast for an unchanged figure in the Consumer Price Index (CPI) but the Pound weakened as some raised their bets that inflation will slide into negative territory next month.

‘In broad terms, what you tend to get when headline inflation has fallen sharply in the past, the core measure follows two to three months later. The worst drag from petrol prices is past us, but other elements that are affected include airfares, which take a good while to feed through. The strength of Sterling against the Euro will also come down on inflation over the coming months. We will hit negative next month on headline inflation. We should finally turn negative albeit mildly and temporarily,’ said Alan Clarke, an economist from Scotiabank.

The data showed also showed that core inflation, which takes out volatile food and energy costs, declined to its weakest level in almost nine years. The figure fell from the 1.2% recorded in February to 1% in March. The drop took economists by surprise as they had been expected the figure to remain unchanged.

Despite the weak inflation rate, the Bank of England (BoE) is not expected to alter its monetary policy. Inflation remains well below its target of 2% but policy makers remain confident that inflation will begin to rise later in the year as oil prices recover.

Against the US Dollar, the South African Rand weakened due to increased expectations that the Federal Reserve will choose to raise interest rates in the summer.

‘The US Dollar has firmed again of late, partly due to somewhat hawkish Fed official rhetoric late last week which alluded to a June lift-off in the Fed funds rate still being a prospect. This would be earlier than the December hike currently discounted by the market,’ said economists from Rand Merchant Bank.

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Also weighing upon the Rand are concerns over the global economy and the ongoing problems in the nation’s electricity supply. Monday’s poor Chinese trade data continues to weigh and Eskom, the nation’s leading utility company has warned of more productivity harming power cuts.

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