Pound to South African Rand Exchange Rate Tumbles despite Trade Fears Weighing on Rand
Despite a concerning escalation in the US-China trade war this week, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate may still be in for another week of losses as investors buy emerging market currencies from their lows.
Last week, a recovery in risky emerging market currencies pushed GBP/ZAR down from 18.12 to 17.93. This week, GBP/ZAR touched on its lowest level in almost a month – 17.59, before recovering slightly.
However, even though the US-China trade war has escalated the Pound (GBP) has been unable recover to the week’s opening levels and GBP/ZAR trended in the region of 17.78 at the time of writing on Thursday.
Investors continued to buy risky emerging market currencies from their worst levels this week, despite concerns about how they may be affected by the US-China trade war.
Other factors supporting the South African Rand (ZAR) outlook on Thursday included lower oil prices, and some strong South African ecostats.
Pound (GBP) Exchange Rate Outlook Unchanged as Investors Await BoE and Brexit Developments
While the beginning of the week was busy and caused high volatility in the Pound, the British currency has calmed notably since then and is now being driven largely by currency rivals.
UK political jitters have faded and EU Chief Negotiator Michel Barnier has indicated that a UK-EU Brexit deal is 80% to completion – but investors are hesitant to buy the Pound much.
As investors anticipate more major UK data or signals from the Bank of England (BoE), the Pound’s movement is limited and range bound.
Analysts are still split on whether or not the Bank of England has enough reason to hike UK interest rates in August, due to underwhelming data and Brexit uncertainties.
The Pound is likely to remain under pressure until some of the uncertainties in the UK economic and Brexit outlooks are lightened.
South African Rand (ZAR) Exchange Rates Defy Trade Jitters
News that the US-China trade war is escalating and will likely escalate further soon would normally have led to broad weakness in risky emerging market currencies like the South African Rand.
However, investors have been buying emerging market currencies from their cheapest levels following months of underperformance, and the Rand has been holding its ground above key support levels.
Weaker prices of commodities like oil have also made emerging market currencies more appealing. Emerging market economies typically benefit from cheaper commodities.
This emerging market currency rally has continued despite the latest trade war fears, but the South African Rand has been supported by domestic factors too.
Thursday saw the publication of South Africa’s May production results, including gold production, mining production and manufacturing production.
Pound to South African Rand (GBP/ZAR) Forecast: Key UK Wage and Inflation Stats Next Week
Sterling movement is likely to pick up again next week, especially if Bank of England (BoE) policymaker Jon Cunliffe offers no surprises regarding UK monetary policy in his speech on Friday.
Next week will see the publication of multiple key UK ecostats, which could have an impact on BoE interest rate hike bets and the Pound outlook.
Britain’s May job market report will be published on Tuesday, including key unemployment and wage growth figures. June’s UK jobless claims figures will be published too.
As wage growth has been a hot topic for the Bank of England this year, May’s average earnings results are likely to be highly influential. If they fall short of expectations, BoE interest rate hike bets may weaken and the Pound outlook would dim.
The same can be said for Wednesday’s UK Consumer Price Index (CPI) report, which is forecast to have shown inflation rising slightly year-on-year.
If investors see signs of weaker UK inflation, there will be even less reason to buy the Pound back from its recent lows and the currency outlook would remain subdued.
Next week may also be a big week for the South African Rand. South African inflation and retail sales will be published on Wednesday, and the South African Reserve Bank (SARB) will hold its July policy decision next Thursday.
Of course, if trade war jitters make investors hesitant to buy emerging market currencies, the Pound to South African Rand (GBP/ZAR) exchange rate is likely to advance.