GBP ZAR Exchange Rate Slides after BoE Revises Inflation Prediction

December 15, 2016 - Written by Minesh Chaudhari

STORY LINK GBP ZAR Exchange Rate Slides after BoE Revises Inflation Prediction

The Pound to South African Rand exchange rate spiked again on Friday afternoon as American markets opened and investors once again went bullish on the US Dollar due to the Fed’s 2017 rate hike outlook.

GBP/ZAR is likely to register modest gains this week overall, but the Pound’s weakness on the week’s Bank of England (BoE) news certainly prevented Sterling from capitalising on this week’s risk-off movement.

[Previously Updated 1pm 16/12/2016]

A better-than-expected CBI industrial trends survey for December helped to shore up Sterling on Friday, with confidence within the manufacturing sector appearing to have improved.

This unexpectedly positive data returned the GBP ZAR exchange rate to an uptrend, although the gains of the Pound were limited thanks to the continued bearish impact of the BoE policy meeting.

[Previously updated 15/12/2016]

The GBP ZAR exchange rate fell this afternoon as the Bank of England (BoE) revised its projections for inflation in 2017.

Pound South African Rand (GBP ZAR) Drops as BoE Lowers Inflation Forecasts

The Pound South African Rand (GBP ZAR) exchange rate fell from its best levels on Thursday afternoon as the BoE held its latest policy meeting.

While policymakers decided to hold interest rates at 0.25% and to leave its £435bn quantitative easing programme unchanged, it was the Bank's revision of its inflation forecast that caused Sterling to dip. As the Monetary Policy Committee (MPC) explained;

‘Since the Committee’s previous meeting, sterling’s trade-weighted exchange rate has appreciated by over 6%. All else equal, this would result in a slightly lower path for inflation than envisaged in the November inflation report, though it is still likely to overshoot the target later in 2017 and through 2018.’

The revised inflation projections have also lowered the chances that the BoE may seek to raise interest rates in the near future, further pressuring the Pound.

Meanwhile the minutes from the meeting struck a decidedly dovish tone as they indicated that the Bank believes ‘a slowdown in growth remained likely’ and that the UK economy is likely to face ‘elevated risks’ next year as the government triggers Article 50 and the formal 'Brexit' process begins.

South African Rand Struggles as Fed Announces Rate Hike

The South African Rand tumbled late on Wednesday as the Federal Reserve announced that it would be raising US interest rates to 0.75%, its first rise in a year and only its second in a decade. The rise caused the Rand to decline as investors avoided high-risk and emerging-market currencies.

ZAR was further pressured by Fed Chair Janet Yellen who struck a hawkish tone towards future rate rises as she predicted that there could be as many as three rate hikes in 2017 if the US economy continues to perform well.

The rise was a major setback for the Rand after upbeat data earlier on Wednesday had helped ZAR GBP advance as data showed that South Africa’s inflation rate rose from 6.4% to 6.6% in November

GBP ZAR Exchange Rate Forecast: Lull in Data May allow Pound to Stabilise

The GBP ZAR exchange rate is likely to trade relatively flatly for the rest of the week as a lull in data for both markets provides little catalyst for movement between the two currencies.

Looking forward to next week the UK will release the last GDP report for the year, which is likely to help the Pound advance if it rose from 2.1% to 2.3% as predicted as the accelerated growth may help the UK economy weather the potential challenges it faces next year when the 'Brexit' process formally begins.

Current Interbank Exchange Rates

At the time of writing the GBP/ZAR exchange rate was trending around 17.45 and the ZAR/GBP exchange rate was trending around 0.05.

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TAGS: Dollar Pound Forecasts