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GBP/ZAR Exchange Rate Outlook: Pound Rally Possible on May Interest Rate Hike

Bank of England

Mid-2018 UK Interest Rate Hike could Trigger GBP/ZAR Advance

The Pound to South African Rand (GBP/ZAR) exchange rate has risen by 1% on 8th February, due to rampant speculation about Bank of England (BoE) interest rate hikes.

Sterling has surged in the wake of the first BoE monetary policy meeting of 2018, which has brought hints of interest rate hikes in the coming months.

Among other optimistic BoE statements have been predictions that the UK wage squeeze will be eliminated this year, via wages rising faster than the pace of inflation.

A number of forecasters are now predicting a UK interest rate hike in May; if this were to occur then the Pound could rise sharply against the Rand.

In the run-up to May’s BoE meeting, signs of slowing UK inflation and rising wage growth may be enough to trigger a pre-emptive GBP/ZAR rate rise.

Rand to Pound Rally possible on Imminent Removal of Jacob Zuma

The Rand has fallen back against the Pound and the Euro on 8th February, but only because of trader uncertainty about major ongoing political discussions.

There could be a Rand to Pound surge in the coming days, depending on the future status of national President Jacob Zuma.

Mr Zuma is an extremely controversial figure in South Africa, not least because of numerous corruption allegations and his rapid hiring and firing of finance ministers.

While Mr Zuma has repeatedly fended off votes of no confidence, the situation has recently shifted to suggest that his removal may be imminent.

Tensions in Zuma’s ruling African National Congress (ANC) party have reached boiling point, with some suggesting that the party could force Zuma to step down.

Zuma has already been blocked from delivering the State of the Nation Address, but beyond this there is a lack of clarity about his future.

The ANC recently elected a new party President, Cyril Ramaphosa, who is tipped to take over as Zuma’s successor.

Considering possible outcomes has been BBC reporter Andrew Harding, who says;

‘The best guess here is that Mr Zuma, who is facing multiple corruption charges, may be looking for some sort of legal guarantees – although amnesty is not an option.

Mr Ramaphosa said both he and Mr Zuma were aware of people’s anxieties, and the need for a speedy resolution in the “coming days”’.

In the event that Zuma is finally ousted from office or steps down, the Rand could surge to historic highs against the Pound.

South African Mining Data could Trigger Future Rand to Pound Volatility

While the Rand may be on track for short-term gains from Jacob Zuma’s removal, it also remains vulnerable to fluctuations in national mining output.

The South African economy has a notable reliance on exporting mining products and resources overseas; higher commodity prices mean higher profits for exporters.

The industry is also reliant on a steady flow of desired resources, however, and mining production stats for December have shown a major slowdown in South Africa.

If mining production levels continue to fall, the Rand could find any advance against the Pound to be limited over the long term.