Rising South African Inflation Shores up Pound South African Rand (GBP/ZAR) Exchange Rate
An unexpectedly sharp uptick in the headline South African inflation rate helped to shore up the Pound to South African Rand (GBP/ZAR) exchange rate.
As the inflation rate picked up from 3% to 3.3% in October this left the South African Rand (ZAR) on a weaker footing against its rivals.
With inflation still trailing near the bottom of the South African Reserve Bank’s (SARB) target range this uptick is unlikely to materially alter the likelihood of future monetary policy action to come.
All in all, investors still expect to see the SARB take fresh action in the months ahead, to the detriment of the Rand.
Lingering anxiety over the relative health of the South African economy also kept a lid on ZAR exchange rates, in spite of a generally elevated sense of market risk appetite.
Weaker 2020 UK Gross Domestic Product Forecast Limits GBP Exchange Rate Upside
Support for Pound Sterling (GBP) also weakened on Wednesday, however, as the latest Office for Budget Responsibility (OBR) forecasts proved worse than anticipated.
With the OBR now expecting to see the UK economy contract by -11.3% in 2020 the strength of GBP exchange rates naturally diminished.
Although the OBR also indicated that the gross domestic product could rise by 5.5% next year this was not enough to limit the impact of the sharp decline in 2020’s growth rate.
Nevertheless, the GBP/ZAR exchange rate held onto a stronger footing thanks to the relative weakness of the South African Rand.
If October’s UK car production figure shows as sharp a decline as forecast on the year this could see the Pound losing fresh ground across the board.
As long as evidence continues to point towards the UK economy remaining under pressure in the final quarter of the year the appeal of the Pound is unlikely to see any improvement.
Steady Producer Price Index Forecast to Limit South African Rand Appeal
With forecasts pointing towards a steady reading from October’s South African producer price index figures the mood towards the Rand may remain muted on Thursday.
As inflationary pressure remains generally lacking within the South African economy the case for greater SARB policy action looks set to increase.
On the other hand, ZAR exchange rates could find some support in the near term as long as markets maintain an optimistic outlook on the prospect of a Covid-19 vaccine rollout.
Signs that the pandemic could come under control sooner rather than later would give investors greater reason to favour the higher-yielding South African Rand over its rivals.
A continued diminishing in US political uncertainty could also offer a rallying point to the Rand, with a smooth presidential transition boding well for the outlook of the global economy.
If market confidence falters, though, this may pave the way for greater GBP/ZAR exchange rate gains.
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