The Pound South African Rand exchange rate has trended lower for most of the week so far, amid market anticipation for the ANC Elective Conference. Sterling was unable to recover much against the Rand as Britain’s latest job market came in mixed.
GBP ZAR fell from 18.48 to 18.28 last week, and this week has slipped below 18.20. The pair hit a low of 18.10 on Tuesday.
Pound (GBP) Fails to Capitalise on Rising Wage Growth
Wednesday’s UK job market report came in mixed, which led to mixed movement in Pound trade throughout the morning.
October’s average earnings results were decent. The wages including bonus figure rose from 2.3% to 2.5% as expected, while the print excluding bonuses unexpectedly rose from 2.2% to 2.3%.
As the wage data beat expectations, investors were initially impressed with the report. However, the rate of wage growth remained well below the rate of inflation meaning UK consumers will continue to face a pay squeeze.
On top of this, unemployment failed to meet expectations in October. The unemployment rate was forecast to improve from 4.3% to 4.2%, but remained at 4.3%.
The report revealed that total employment had actually dropped for the second month in a row, which concerned investors and limited the Pound’s appeal.
Analysts were overall unimpressed with the results, with fears that the job market was stalling as well as lasting concern about falling real wages. Analysts have pointed out that wage growth is not accelerating much even despite UK unemployment being near a 42-year-low.
The report followed Tuesday’s Consumer Price Index (CPI) report, which came in higher than expected in both monthly and yearly prints.
Some investors speculated that the higher inflation rate could keep pressure on the Bank of England (BoE), but many analysts were unsurprised by the inflation report and remained more concerned about the ongoing pay squeeze.
As a result, the market outlook for Bank of England policy in 2018 hasn’t changed much – though the bank could still cause notable Pound movement depending on its tone on Thursday.
The BoE will be holding its December policy decision on Thursday and any hints towards tighter monetary policy in 2018 or even early 2019 could cause a surge in Pound demand.
On the other hand, if the bank shows greater concern about Britain’s economy, or takes a cautious ‘wait and see’ approach, Sterling could see limp trade later in the week as speculation for tighter monetary policy any time soon fades.
Looking ahead, next week will see the publication of Britain’s final Q3 Gross Domestic Product (GDP) results, which could also influence the Pound outlook.
South African Rand (ZAR) Kept Buoyed by ANC Election Hopes
The South African Rand has kept GBP ZAR below the week’s opening levels in recent sessions, following last week’s GBP ZAR drop.
While the South African Rand’s rally has slowed this week, investors are still cautiously optimistic about the upcoming African National Congress (ANC) leadership election.
The ANC is set to start its elective conference this upcoming weekend. Market hopes for Cyril Ramaphosa to win the leadership battle has kept the Rand relatively appealing. The conference will begin on the 16th of December and run until the 20th.
Ramaphosa, seen as a business-friendly market favourite, is one of the two overall favourites to win the leadership battle – and the ANC leader has a strong chance to become South Africa’s President in 2019.
Wednesday saw the publication of South Africa’s latest Consumer Price Index (CPI) results. The monthly inflation rate slipped from 0.3% to 0.1%, missing the forecast 0.2%, while the yearly inflation rate missed 4.7% projections and came in at 4.6%.
As inflation remains within the South African Reserve Bank’s (SARB) target band and the SARB still predicts more interest rate hikes in the coming two years, the news had little impact on the Rand.
Overall, investors are likely to double down in focus on the ANC leadership election over the coming week and the results are likely to have a massive impact on Rand trade.
If Ramaphosa happens to win the contest, the South African Rand will surge and the long-term GBP ZAR outlook will drop.
GBP ZAR Interbank Rate
At the time of writing this article, the Pound South African Rand exchange rate trended in the region of 18.23. The Rand to Pound exchange rate traded at around 0.05385.
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