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Pound South African Rand (GBP/ZAR) Exchange Rate Steady, US-China Trade Tensions in Focus

November 20, 2019 - Written by John Cameron

GBP/ZAR Exchange Rate Rangebound, South African Inflation Hits Near 9-Year Low

The Pound South African Rand (GBP/ZAR) exchange rate held steady today, with the pairing currently trading around R19.062 despite weakening demand for riskier assets as US-China trade relations worsen over tariffs and increasing unrest in Hong Kong.

However, the risk-sensitive South African Rand (ZAR) is being propped up by optimism that the South African Reserve Bank (SARB) will leave its interest rates untouched at 6.5% on Thursday.

Lukman Otunuga, the Senior Research Analyst at FXTM, commented:

‘The central bank is widely expected to leave interest rates unchanged at 6.5 percent, despite lingering fears of a credit downgrade by Moody’s and fragile economic conditions weighed by external risks… Should the [SARB] adopt a cautious stance and express concerns over the South African economy, the [South African Rand] will be thrown in the direct firing line.’

Today saw South African’s inflation figure fall flat at 0% on the month today, while its year-on-year figure fell below forecasts to 3.7%, its lowest in almost 9-years.

Jeffrey Schultz, an Economist at BNP Paribas, said:

‘Does the lower-than-expected inflation reading increase chances of a rate cut tomorrow, perhaps. But the SARB’s fundamental premise is to maintain a healthy real-rate buffer given the increased fiscal risk premium.’

GBP/ZAR Exchange Rate Struggles on Heightened UK Political Uncertainty

The Pound (GBP) failed to gain on the South African Rand (ZAR) today following last night’s election debate between Prime Minister Boris Johnson and leader of the Labour Party, Jeremy Corbyn, due to no clear ‘winner’ from the head-to-head.

Piotr Matys, a Currency Analyst at Rabobank, said:

‘The debate was not a game-changer… The market reaction would have been stronger if Jeremy Corbyn had gained an advantage in the polls but that doesn’t appear to have been the case.’

With the Conservatives generally being the market's favourites, due to hopes of a Tory-led government offering a Brexit breakthrough on the 31st January and offering more business-friendly policies, signs of slipping favourability in the polls will weigh on Sterling.

Yesterday’s debate was a chance for Boris Johnson to consolidate his party’s lead, but with both leader’s performance leaving them in a tie, Pound investors are becoming increasingly jittery ahead of the 12th December general election.

With no UK ecostats due out until tomorrow, the GBP/ZAR exchange rate will be driven by British political developments for the rest of the day.

GBP/ZAR Outlook: SARB Interest Rate Decision in Focus

South African Rand investors will be looking ahead to tomorrow’s interest rate decision from the SARB. Any dovish comments from South Africa’s central bank could indicate weakening monetary policy going forward and weaken the ZAR/GBP exchange rate.

Pound traders, meanwhile, will be looking ahead to tomorrow’s publication of October’s UK Public Sector Net Borrowing figure.

However, UK political developments will drive the GBP/ZAR exchange rate tomorrow, with any signs of the Tories losing their prominence in the polls likely to weaken market sentiment in the Pound.

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