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Pound South Africa (GBP/ZAR) Exchange Rate Dips, Markets Brace for SARB Interest Rate Decision

GBP/ZAR Exchange Rate Eases, US-China Trade Tensions Intensify

The Pound South African Rand (GBP/ZAR) exchange rate eased today, with the pairing currently trading around R19.088 as markets brace for the South African Reserve Bank’s (SARB) interest rate decision this afternoon, which is expected to hold at 6.5%.

Analysts at Reuters commented:

‘Some analysts warn that the South African Reserve Bank (SARB) will look through the inflation print and calls for a rate cut to support consumer spending and growth, and stick to its cautious approach that has seen it keep the rate unchanged for the last two meetings.’

Some of the risk-sensitive South African Rand’s (ZAR) gains were clipped after US-China trade tensions intensified following the US Senate approval of a bill to protect human rights in Hong Kong.

The ‘HK Bill’ received a sharp rebuke from Beijing, with Washington now being perceived as meddling in China’s affairs.

However, we could see the ZAR/GBP exchange rate begin to sink today if the SARB shows any caution over consumer spending and growth or hints at a rate cut in the near-term.

GBP/ZAR Exchange Rate Eases, UK Public Borrowing Hits 5-Year High in October

The Pound (GBP) struggled against ZAR today following the release of October’s UK Public Sector Net Borrowing figure, which rose from £7.256 billion to £10.509 billion and significantly increased Britain’s deficit last month to a near 5-year high.

Analysts at Reuters were downbeat in their assessment, saying:

‘[B]orrowing now looks almost certain to rise significantly in the coming years due to looser budget policy, over and above the likely negative impact from leaving the European Union.’

UK political developments have remained in focus, with the Labour Party set to launch its election manifesto today.

GBP investors will be paying close attention to Labour’s manifesto to assess its potential economic impact and how the party will handle Brexit.

However, if the manifesto boosts Labour’s position in pre-election polls, we could see Sterling sink as markets generally hope for a Tory victory on the 12th December due to their more robustly pro-business message and more decisive approach on Brexit.

GBP/ZAR Outlook: Could Sterling Rise on Improving UK Services Sector?

Pound (GBP) investors will be looking ahead to tomorrow’s release of November’s flash UK Markit Manufacturing PMI, which is expected to remain mired in contraction territory at 49.

Tomorrow will also see the release of November’s flash UK Markit Services PMI, with any improvement in Britain’s largest sector likely to boost market confidence in the Pound.

US-China trade developments will continue to drive the South African Rand (ZAR) for the rest of this week, with any indications of talks between the world’s two largest economies collapsing pushing down the risk-averse ZAR.