Pound South African Rand (GBP/ZAR) Exchange Rate Climbs on Surprise SA Inflation Dip

October 28, 2020 - Written by Frank Davies

STORY LINK Pound South African Rand (GBP/ZAR) Exchange Rate Climbs on Surprise SA Inflation Dip

Softer SA Inflation Rate Fuels Pound South African Rand (GBP/ZAR) Exchange Rate Gains

The Pound Sterling to South African Rand (GBP/ZAR) exchange rate pushed higher on Wednesday thanks to a surprise dip in September’s South African inflation rate.

As the headline inflation figure dipped from 3.1% to 3.0% this pushed inflation closer to the bottom of the South African Reserve Bank’s (SARB) target range.

This weakening of inflationary pressure could pave the way for policymakers to loosen monetary policy in the near future, leaving the South African Rand vulnerable to selling pressure.

Increasing anxiety over a second wave of Covid-19 inflections in Europe and the US also dragged on ZAR exchange rates, thanks to a general deterioration in market risk appetite.

As long as investors see reason to bet that an interest rate cut could be on the horizon this may keep the South African Rand biased to the downside.

Rising UK Covid-19 Deaths Weigh on Pound as Possibility of Fresh Restrictions Grow

With the UK Covid-19 death toll rising sharply, now exceeding 300 on a daily basis, markets are increasing nervous of the possibility of renewed social restrictions to come.

Although the government has previously resisted calls for a fresh national lockdown the lingering possibility put pressure on the GBP/ZAR exchange rate.

As the economy has already shown signs of weakening at the start of the fourth quarter the prospect of fresh restrictions weighed heavily on the minds of investors.

With retail sales already slowing in the face of second wave fears the risk of consumer confidence weakening further in the coming months limited the appeal of the Pound.

The GBP/ZAR exchange rate could also experience volatility in the face of any fresh UK-EU trade talk developments.

Unless the two sides show signs of approaching a final agreement in the near future the possibility of a no-deal scenario may stoke worries over the economic outlook, to the detriment of the Pound.

South African Rand Remains Vulnerable to Growing US Political Jitters

Growing anxiety over the global growth outlook could put pressure on the South African Rand, meanwhile.

As markets brace for the outcome of next week’s US presidential election, and the possibility of a contested result, ZAR exchange rates may struggle to find support.

With markets in a firmly risk-off mind-set the appeal of the South African Rand looks set to remain distinctly limited in the days ahead.

The mood towards the Rand may improve on Friday with the release of September’s South African trade balance figure, however.

A widened trade surplus could encourage ZAR exchange rates to push higher across the board, with stronger trade conditions likely to limit worries over the performance of the wider South African economy.

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TAGS: Pound Rand Forecasts