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Pound South African Rand (GBP/ZAR) Exchange Rate Rises as SARB Rate Cut Fears Increase

June 19, 2019 - Written by John Cameron

GBP/ZAR Exchange Rate Increases as SA Inflation Holds in SARB’s Target Range

The Pound South African Rand (GBP/ZAR) exchange rate rose today and is currently trading around R18.2959 on the interbank market.

The South African Rand (ZAR) sank against Sterling despite better-than-expected annual SA Consumer Price Index (CPI) figures for May, which rose above the consensus 4.4% to 4.5%.

Monthly CPI figures for May also rose above forecast to 0.30%.

However, as inflation has remained within the South African Reserve Bank’s (SARB) target range throughout May, this has increased the possibility of a rate cut to bolster the flagging SA economy.

Elize Kruger, an Analyst at NKC African Economists, commented:

‘Inflation has surprised to the downside for the last few months and the SARB has acknowledged that. On top of that there’s the weak growth environment, so I think they’ll cut by 25 basis points at the July meeting.’

The Pound edged higher against the South African Rand following last night’s second round of parliamentary votes on the future Tory leadership, with Boris Johnson winning the overall majority, while Dominic Raab, the former Brexit Secretary, was eliminated from the race.

GBP/ZAR Exchange Rate Edges Higher as UK Inflation Eases

Sterling failed to benefit from today’s publication of the UK’s yearly inflation data, however, which eased as expected at 2.0%.

Tom Stevenson, an Investment Director at Fidelity, commented that there is ‘no pressure’ for the Bank of England to increase its rates.

He said:

‘In the thick of a leadership contest – and with Brexit as far from resolution as ever – the Bank will most likely err on the side of caution as we face continuing political and economic uncertainty during the rest of 2019.’

Today also saw the printing of the UK retail prices index figures for May, which increased above the forecast 0.2% to 0.3%.

Political news surrounding the Conservative Party’s leadership has tended to eclipse Brexit discussions over the last week, and with concerns rising over the UK’s future with the EU, this has left some Sterling investors feeling jittery with no-deal fears.

GBP/ZAR Outlook: Conservative Party Leadership Race to Remain in Focus

Sterling traders will be awaiting tomorrow’s BoE’s interest rate decision, which is expected to hold at 0.75%.

Any dovish commentary on the state of the UK’s economy following the decision, however, could see the Pound begin to ease against the South African Rand.

Tomorrow will also see the Governor of the BoE, Mark Carney, deliver a speech, with Pound investors taking particular note of his tone going forward.

UK retail sales figures could also provide influential on Sterling, and with a general consensus of a decrease, we could see the GBP/ZAR exchange rate begin to sink.

South African Rand investors, meanwhile, will be paying attention to global political developments.

Any signs of an emerging consensus between the US and China could benefit the South African economy, which relies heavily on China as a trading partner.

The Pound South African Rand exchange rate will remain fixated on political developments, with the Conservative Party leadership race remaining in focus.

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