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Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Rises Ahead of US Federal Reserve Interest Rate Decision

July 31, 2019 - Written by John Cameron

Pound South African Rand (GBP/ZAR) Exchange Rate Rises as Shanghai Talks End Without Signs of a Breakthrough

The Pound Sterling South African Rand (GBP/ZAR) exchange rate edged up and the pairing is currently trading at an inter-bank rate of R17.3140.

The Rand was left under pressure on Wednesday following a fresh wave of US-China trade pessimism.

This week’s talks between US and Chinese officials in Shanghai ended with little sign of a breakthrough.

However, face-to-face talks ended with a willingness to continue discussions.

Meanwhile, the Rand could be provided with an upswing of support as markets anticipate a US Federal Reserve rate cut.

Fed officials are widely expected to cut interest rates for the first time since the financial crisis.

Commenting on this, Head of Emerging Market Strategy at TD Securities, Cristian Maggio said:

‘If the Fed comes with a very dovish message we are going to see a very positive reaction from EM assets but anything less may disrupt that momentum.’

Pound (GBP) Increases as GfK Consumer Confidence Edges Up

The Pound rose against the South African Rand as GfK consumer confidence edged up to -11 in July.

This unexpected rise from June’s reading of -13 likely provided Sterling with a slight upswing of support.

It was revealed that out of the five measures, four increased while one remained unchanged.

Commenting on today’s data from GfK, Joe Staton, Client Strategy Director at GfK noted:

‘Pre-Brexit consumers are marginally more bullish this month with improvements in levels of confidence across most measures. Although it’s too soon to judge any impact of a post-Boris bounce, we can report a boost in attitudes to our personal financial situation in the face of low interest rates and day-to-day inflation, a buoyant labour market and growth in real wages.

‘Consumers have generally been less affected by Brexit uncertainties than business since the referendum. However, the coming months to the 31 October departure date will test the strength of this confidence.’

South African Unemployment Hits 16-Year High

Meanwhile, on Tuesday South African unemployment hit its highest level since the global financial crisis over a decade ago.

Unemployment hit a 16-year high of 29% in the second quarter of 2019, up from 27.6% in the first three months of 2019.

This was driven by cuts in transport, mining and in private households.

In Q2 2019 there was a total of 6.7 million people without a job, compared to the previous quarter’s 6.2 million people.

Commenting on this, Chief Executive of Adcorp Innocent Dutiro, stated:

‘The labour force is currently growing by around 101,000 people per quarter, where as the economy is creating on average 53,000 jobs per quarter. This means the economy is generally absorbing only one in two potential workers.’

Added to this, South African state power firm, Eskom reported it made an annual loss of more than R20 billion, which makes 7,000 staff cuts inevitable.

Pound South African Rand Outlook: Will a Dovish BoE Weigh on GBP?

On Wednesday evening, the South African Rand (ZAR) could edge up against the Pound (GBP) following the US Federal Reserve interest rate decision.

If the Fed cuts rates by a more aggressive 50 basis points, the Rand could rise.

Looking ahead to Thursday, Sterling is likely to remain under pressure ahead of the Bank of England’s (BoE) interest rate decision.

While the BoE is expected to leave rates unchanged, if its monetary policy statement is overly dovish, the Pound South African Rand (GBP/ZAR) exchange rate could slide.

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