Pound to South African Rand Exchange Rate Gains Limited Despite Bank of England (BoE) Hawkishness
Despite a surprising number of hawkish stances among the Bank of England’s (BoE) Monetary Policy Committee (MPC) this week, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate was unable to climb due to a firming South African Rand (ZAR).
Still, GBP/ZAR is on track to end the week higher despite this. GBP/ZAR opened the week at the level of 17.89 and touched on a high of 18.43 earlier in the week. The pair has since slipped from that high and at the time of writing trended closer to the level of 17.90.
While Sterling (GBP) climbed against most major currencies following the Bank of England’s (BoE) policy decision on Thursday, it was not able to register gains against the Rand.
This was due to shifting market risk-sentiment. As the US Dollar (USD) was finally sold from its highs, the risky Rand rebounded from its lowest levels in a recovery rally.
While the rebound was largely due to technical support, the US Dollar’s weakness helped the South African Rand to capitalise on this recovery.
Pound (GBP) Exchange Rate Outlook Higher Following Bank of England (BoE) Decision
A tighter than expected voting split in the Bank of England’s (BoE) Monetary Policy Committee (MPC) left the Pound a lot more appealing towards the end of the week.
Analysts had widely expected that only two policymakers would vote to hike UK interest rates in June’s meeting, but BoE Chief Economist Andy Haldane made the surprise jump to hawk and voted for a rate hike too.
Not only did Haldane argue that UK growth had rebounded since the winter, the rest of the bank seemed to signal that a UK interest rate hike was on the cards too.
According to Ruth Gregory from Capital Economics, there may even be two rate hikes on the cards for 2018:
‘While the monetary policy committee stopped short of explicitly committing to a rate hike in August, the hawkish tone of June’s minutes and statement suggest it is pretty likely.
We doubt that the MPC will sit on its hands for too much longer. Provided that GDP growth rebounds and earnings growth strengthens as we expect, we remain confident in our view that the next rate hike will come in August, with another following in November.’
As a result, despite some weaker than expected UK inflation and wage results recently, BoE interest rate hike bets rose on Thursday and bolstered the Pound outlook.
GBP/ZAR merely failed to extend its weekly gains due to stronger demand for the South African Rand.
South African Rand (ZAR) Exchange Rates Sturdy Thanks to Technical Support
Global shifts in risk-sentiment have been largely behind the South African Rand’s late-week strength, but some domestic factor have helped support the currency too.
As South African inflation has not been as high as feared despite the recent weakness in the Rand, investors were less hesitant to buy the currency.
While there is still speculation that the South African Reserve Bank (SARB) will hike South Africa’s interest rates to combat the high inflation, the more moderate than expected print this week did help to cool market jitters.
However, possibly the biggest cause of ZAR’s recovery this week has been a selloff in the US Dollar (USD), and technical support.
According to Cheslyn Francis from AfriFocus Securities, ‘The overall sentiment is that the Rand was largely oversold,’
Pound to South African Rand Forecast: GBP/ZAR Outlook Could Rise on UK Growth Report
Next week’s UK and South Africa economic calendars will be quieter, but global factors could continue to drive Rand trade regardless.
With oil prices volatile in recent weeks, the South African Rand is likely to react to oil commodity news. As Emerging markets typically benefit from cheaper oil, falling oil prices would make the Rand more appealing.
On top of this, developments regarding US trade tariffs and protectionism are likely to influence global risk-sentiment and the risky Rand.
The Rand outlook has been higher due to hopes for South Africa’s economy to improve, but the Pound outlook has risen too.
In fact, if Britain’s Q1 growth report beats expectations next Friday it could make markets more confident that Britain’s economy did not slow as much as feared over the winter.
This would further support a Sterling recovery rally and could lead to a higher outlook in the Pound to South African Rand (GBP/ZAR) exchange rate.