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GBP/ZAR Forecast: Pound to South African Rand Exchange Rate Hits Monthly Worst as Sterling Tumbles

March 24, 2021 - Written by John Cameron

Despite panic about a central bank shakeup in Turkey at the beginning of the week, the British Pound to South African Rand (GBP/ZAR) exchange rate has been tumbling this week. The Rand has managed to shake off this week’s aversion to risk taking, while the Pound is weakened by the latest UK inflation rate results and concerns about UK-EU tensions over coronavirus vaccinations.

Last week saw GBP/ZAR tumble from 20.81 to 20.35 throughout the week as the South African Rand benefitted from the market’s higher risk-sentiment. This week’s movement has been comparatively more mixed, but the South African Rand has been generally able to avoid sustained losses against a more jittery Pound.

At the time of writing on Wednesday, GBP/ZAR is trending close to its worst levels in a month, in the region of 20.24.

Pound Sterling (GBP) Exchange Rates Fail to Benefit from Strong PMIs as Reflation Hopes Doused

The Pound’s recent strong streak has been hit by various factors this week, causing the British currency to lose much of its recent shine as markets reassess its strength.

Not only is Sterling being hit by UK-EU post-Brexit trade tensions, the Pound was further weakened as today’s UK inflation report fell well short of forecasts.

As UK inflation printed at just 0.4% year-on-year rather than the expected 0.8%, hopes for UK price pressures to rise enough to lead to more hawkish monetary policy have been dampened.

According to Howard Archer, Chief Economic Adviser at the EY Item Club, this may simply mark a low point for inflation:

‘February’s is highly likely to mark inflation’s low point. The EY Item Club expects inflation to move markedly higher over the coming months.

Unfavourable base effects resulting from the fall in oil prices in early 2020 will have an upward impact, magnified by the recent rise in oil prices to one-year highs. Energy prices for millions of consumers will rise in April after the price cap was raised. After a challenging Q1, an expected progressive firming of the economic recovery from early-2021 will also have some upward impact on inflation.’

Despite this though, other analysts believe inflation will not rise enough to influence a more hawkish BoE for quite some time.

As a result of this, optimism and some stronger than expected UK PMI projections were not enough to support the Pound’s appeal today.

South African Rand (ZAR) Exchange Rates Strong Ahead of South African Reserve Bank (SARB)

The South African Rand is a currency typically correlated to risk and emerging market sentiment.

Despite this though, it has been able to defy market risk-aversion today and climb higher against the Pound.

Investors are buying the Rand ahead of tomorrow’s South African Reserve Bank (SARB) policy decision. This is partially due to speculation that the SARB could hint at a future interest rate hikes or policy tightening.

Other emerging markets have made rate hikes recently, including in Turkey and Brazil. This has boosted rate hike speculation and is keeping the South African Rand buoyed.

Amid relatively optimistic SARB speculation, the South African Rand has avoided being weighed by underwhelming South African inflation rate data.

Today’s South African inflation stats fell slightly short of forecasts. Despite signs of lower than expected price pressures, this hasn’t offset bullish speculation in markets, so the Rand remains appealing.

GBP/ZAR Exchange Rate Forecast: South African Reserve Bank (SARB) and UK Retail Report Ahead

The biggest event of the week for South African Rand investors is still ahead. The South African Reserve Bank (SARB) will hold its March policy decision tomorrow.

Speculation has been rising that the bank will signal an interest rate hike or other monetary policy tightening.

As a result, if the SARB plays down the chances of tighter policy, the South African Rand could plummet. A lack of hawkish speculation combined with the market’s general risk-off mood would leave the Rand highly unappealing.

As for the Pound, investors are awaiting Friday’s UK retail sales results.

If UK retail sales fall short of expectations, they could dampen hopes for UK economic resilience. This could lead to further GBP/ZAR losses before markets close for the week.

Of course, more optimistic UK coronavirus developments or strong data could help the Pound hold onto some of its recent strength, and the Pound to South African Rand exchange rate would be more resilient.
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