Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Fails to Capitalise on Carney Term Extension
News that Bank of England (BoE) Governor Mark Carney has agreed to remain with the Bank until January 2020 was not enough to boost the ailing Pound Sterling to South African Rand (GBP/ZAR) exchange rate.
As the possibility of Carney serving an extended term was already largely priced into Pound Sterling (GBP) last week the impact of the confirmation proved relatively limited.
There was also a sense of disappointment among investors that Carney had not agreed to serve out a full eight year term at the BoE which diminished the potential for Pound gains further.
While UK average weekly earnings showed a solid acceleration in the three months to July, continuing to outpace inflation, GBP exchange rates struggled to find traction on Tuesday.
After the sharp gains seen in the wake of chief EU negotiator Michel Barnier’s latest optimistic comments on Brexit the Pound has seen limited headroom for additional gains.
With Conservative backbenchers still pushing back against Theresa May’s Chequers proposals the threat of a hard Brexit continues to hang over the GBP/ZAR exchange rate.
Bullish South African Production Weighs Heavily on GBP/ZAR Exchange Rate
An unexpectedly sharp increase in South African manufacturing production heaped further pressure on the Pound Sterling to South African Rand (GBP/ZAR) exchange rate.
As production soared 2.9% on the year in July this impressed investors, suggesting that the economy is shaking off the sluggishness seen under former president Jacob Zuma.
With market risk appetite generally improving there was little reason not to favour the South African Rand (ZAR) over its lower-yielding rivals.
If South African data continues to outperform expectations in the days ahead this is likely to keep ZAR exchange rates biased to the upside.
Similarly bullish gains in mining production would improve confidence in the underlying health of the South African economy, especially if this is backed up by a stronger third quarter Business confidence index.
However, any signs of persistent domestic weakness would leave the South African Rand vulnerable to fresh selling pressure, especially if market sentiment sours once again.
Pound South African Rand (GBP/ZAR) Exchange Rate Looks Vulnerable Ahead of BoE Decision
Reaction to the BoE’s September policy meeting could see the Pound Sterling to South African Rand (GBP/ZAR) exchange rate extend its losses further.
Markets do not expect to see any move on monetary policy at this stage, with interest rates set to remain on hold for a while to come.
Focus will instead fall on the tone of policymaker commentary, with investors hoping to see evidence of greater confidence within the Monetary Policy Committee (MPC).
As analysts at TD Securities noted:
‘While we believe that the BoE is on the side-lines until mid-2019, yesterday’s decent monthly GDP report and today’s upside surprise to wages should give them confidence that the underlying economy has not deteriorated too much as Brexit uncertainty has increased. Once the political risks have subsided in March 2019, they will be in a position to hike Bank Rate twice next year.’
If policymakers adopt a more cautious outlook, however, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate may reverse more of its recent gains.