GBP/ZAR Exchange Rate News: Pound to Rand Advance Triggered by Rising US Dollar

July 26, 2018 - Written by James Fuller

STORY LINK GBP/ZAR Exchange Rate News: Pound to Rand Advance Triggered by Rising US Dollar

On Wednesday, the Pound opened trading against the South African Rand at a level of 17.4681 and later closed down lower at 17.3054.

This decline in the value of the Pound was caused by a cautious trader reaction to Confederation of British Industry (CBI) data covering retail activity in July.

The CBI’s distributive trades reading declined from 32 points to 20 as predicted, which was slightly better than the anticipated 15 point reading.

Despite the supposed good news, CBI experts stressed that there might be a future retail sector slowdown.

Pound to South African Rand (GBP/ZAR) Exchange Rate Rises despite Brexit ‘Stockpile’ Report

The Pound’s (GBP) 0.4% advance against the South African Rand (ZAR) today is mainly down to the Rand weakening; the latest UK news has been relatively unsupportive.

This domestic event has been the report that the UK government intends to stockpile food and medical supplies if there is no Brexit deal in 2019, which has unsettled GBP traders.

A ‘no-deal’ Brexit is considered the worst-case scenario, but the fact that it is seen as a real possibility has rattled GBP traders today and prevented further gains against the Rand.

South African Rand to Pound (ZAR/GBP) Exchange Rate Slides on US Dollar Advance

The South African Rand (ZAR) has fallen in value against the Pound (GBP) today, which is mainly down to the latest US developments.

The US Dollar traded poorly earlier on, but has since recovered and risen in value, lowering demand for the riskier Rand in the process.

South African Rand traders have been going through an uncertain phase recently, primarily because of fading confidence in the ability of President Cyril Ramaphosa to implement real economic reform.

Pound Sterling to South African Rand Exchange Rate Forecast: Are GBP/ZAR Gains ahead on BoE Interest Rate Hike?

The Pound (GBP) has a chance to rise against the South African Rand (ZAR) in the coming week, when the Bank of England (BoE) makes its August interest rate decision on Thursday.

This will likely be the most important UK economic announcement of the week, as it could finally bring a ‘proper’ BoE interest rate hike from 0.5% to 0.75%.

Prior to 2016, the UK central bank hadn’t adjusted interest rates from 0.5% since 2009 and had last raised rates in mid-2007.

After the 2016 EU Referendum, the BoE cut interest rates to a historic low of 0.25%, later restoring them back to 0.5% in 2017.

Economists are currently on the fence about whether an August interest rate hike is really likely, given that recent UK economic data has been poor enough to warrant another freeze from the UK central bank.

Backing higher rates, Rathbones Head of Asset Allocation Research Edward Smith says:

‘The Bank’s latest narrative makes sense. Echoing the Office for Budget Responsibility, and in line with our own modelling, it now estimates that the UK’s productive capacity can expand at an annualised rate of just 1.5% a year.

‘If GDP growth (demand) comes in above that, it’s likely to be inflationary and will require a higher policy rate, even though growth of 1.5-2.0% still seems weak.

‘Recent data suggests that growth in the second quarter could be a little north of 1.5%, and that could continue into the third quarter. So let’s show some follow-through and hike.’

On the other hand, however, SEB’s Richard Falkenhall cautions that:

‘A rate hike in August is, if not a policy error, at least questionable. UK economic growth is not at all that strong … wage growth has not at all reacted as in the past and appears to have eased again in recent months.

‘Inflation … is already falling and seems set to continue to end up below the inflation target by the end of this year.

‘In fact, core inflation fell below the target to 1.9% in June.

‘The Brexit process creates a huge amount of uncertainty, which is bad for growth. [This shows that] there are several reasons why the BoE should be a little more patient and leave policy unchanged in August.’

Simply put, an interest rate hike might push the Pound to annual highs against the Rand, while another rate freeze could devalue Sterling.

Next week’s first major South African data will arrive sooner, consisting of Tuesday’s trade balance and unemployment rate data.

The jobless rate is forecast to rise from 26.7% to 27%, but the Rand could still appreciate if June’s trade surplus grows as forecast.

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TAGS: Pound Rand Forecasts