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Pound South African Rand (GBP/ZAR) Exchange Rate Jumps 1% as BoE Leaves Rates on Hold

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Rallies as BoE Leaves Interest Rates Unchanged

UPDATE: The Pound Sterling South African Rand (GBP/ZAR) exchange rate rose by over 1%. The pairing is currently trading at around R19.2096.

Sterling sentiment rallied as the Bank of England (BoE) left interest rates unchanged at 0.75%.

Although, the decision was not unanimous, as both Michael Saunders and Jonathan Haskel voted in favour of a rate cut.

The bank’s minutes revealed:

‘In 2019, the UK economy slowed because firms’ uncertainties about Brexit reduced their spending, and growth in the world economy slowed. UK inflation fell back below our 2% target.

‘The latest data suggest that the uncertainty facing businesses has fallen, and that global growth has stabilised. We expect uncertainty to fall further and global growth to pick up. If that happens, it should help to support growth here in the UK.

‘If that does not happen, then we may need to lower interest rates to support UK growth and ensure that we return inflation to our 2% target sustainably.’

Eskom and Wuhan Virus Fears Buoy the Pound Sterling South African Rand (GBP/ZAR) Exchange Rate

The Pound Sterling South African Rand (GBP/ZAR) exchange rate rallied on Thursday, leaving the pairing trading at around R19.0688.

The South African Rand weakened over the course of Thursday as concerns over the Wuhan virus continued to dominate markets.

The death toll in China has jumped to 170, with over 7,700 reported cases of infection and an increasing number of cases being reported worldwide.

Added to this, a weak South African economic outlook dampened Rand sentiment.

Fears state firm, Eskom’s coal-fired plants are struggling to meet electricity demand after the company said earlier today that the power system was tight.

The firm also warned that it may have to implement rotational power cuts in the evening, reminiscent of last year’s severe nationwide cuts.

The Rand slumped as the previous power cuts pushed the economy towards the brink of recession, piling further pressure on President Cyril Ramaphosa.

Bank of England (BoE) Rate Cut ‘Finely Balanced’

The Pound remained under pressure against a handful of currencies on Thursday ahead of the Bank of England’s (BoE) interest rate decision.

With the chance of a cut currently priced in by markets around 50%, either way, the bank decides to go will cause movement of Sterling.

GBP fell as the BoE is currently closer than it has been in nearly three years to easing monetary policy.

Two of the bank’s policymakers, Jonathan Haskel and Michael Saunders have voted in favour of cutting rates since November.

Comments from outgoing Governor Mark Carney and further policymakers have increased the chance the majority of the Monetary Policy Committee will back easing.

Many expect a cut, and Bank of America economist, Robert Wood wrote in a note to clients:

‘Whether they cut or not is finely balanced, but recent BoE speeches suggest urgency.’

However, this has done little this morning to stop GBP rising against the South African Rand as investors fret about the economic fallout of the Wuhan coronavirus.

Pound South African Rand Outlook: Will the BoE Ease Monetary Policy?

Looking ahead, the Pound (GBP) could reverse this morning’s gains against the South African Rand (ZAR) following the Bank of England’s (BoE) interest rate decision.

If the bank eases monetary policy for the first time in almost three years, Sterling will plummet.

Meanwhile, the pairing could be left flat if the risk-sensitive Rand continues to be hit by Wuhan virus fears.

If the risk-off mood continues amongst investors, the Pound South African Rand (GBP/ZAR) exchange rate will be left flat.