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Pound South African Rand (GBP/ZAR) Steady, UK Public Borrowing Sinks Ahead of Spring Budget

GBP/ZAR Exchange Rate Rangebound, UK Markets Weigh-Up Odds of BoE Rate Cut

The Pound South African (GBP/ZAR) exchange rate held steady today, with the pairing currently trading around R18.885 after December’s UK public sector net borrowing report eased ahead of Chancellor of the Exchequer Sajid Javid’s March Budget.

Analysts at Reuters commented:

‘Britain’s government borrowed less than expected in December but there were signs the economy’s weakness was hurting corporate tax receipts, while a pay rise for health workers pushed up spending.’

Sterling remained unmoved, however, as British markets continue to weigh up the odds of an interest rate cut from the Bank of England (BoE) later this month.

Kallum Pickiering, a Senior Economist at Berenberg, commented:

‘I struggle to make a strong case for a January rate cut. Much of the data, which is weak, is pre-election so what will matter more to the Bank of England is the PMI data on Friday.’

The GBP/ZAR exchange rate has remained steady today after yesterday’s strong UK labour data has continued to buoy market confidence in the Sterling. This follows November’s ILO unemployment rate report, which showed its lowest levels since the 1970s, while employment rose to a record high.

ZAR/GBP Exchange Rate Steady, South African Inflation Rises Amid Geopolitical Uncertainty

The South African Rand (ZAR) failed to gain on Sterling after South Africa’s Consumer Price Index for December rose from 0.1% to 0.3%, while the year-on-year figure increased by 4%.

Kamilla Kaplan, an analyst at Investec, commented on the report:

‘The other key influence on the CPI outcome in December was the increase in the contribution from the food and non-alcoholic beverages. December was also a measurement month for rentals which registered slower rates of growth, translating to a lower contribution from the housing and utilities component… broadly reflective of a weak demand environment that limits pricing power in the economy.’

Global political and economic uncertainty, however, continues to weigh on the risk-sensitive South African Rand today. This follows increasing doubts over the longevity of the US-China ‘phase one’ trade deal, with tensions between the world’s two largest economies showing signs of strain following the historic agreement.

GBP/ZAR Outlook: Could the South African Rand Sink on Heightened Risk Aversion?

Pound (GBP) investors will be looking ahead to Friday’s UK Markit Services PMI report for January, with any signs of improvement likely buoying the GBP/ZAR exchange rate as the odds of a BoE rate cut ease off.

Friday will also see the release of January’s flash Markit Manufacturing PMI. This, too, could provide uplift for the Pound if British industry shows any signs of improvement post-December’s general election.

The South African Rand (ZAR) will remain sensitive to geopolitical developments this week, however, as the risk-sensitive ZAR continues to fluctuate due to growing concerns over the newly-forged US-China trade deal.