GBP/ZAR Exchange Rate Softer as South African Rand Rallies following Rate Decision
The GBP/ZAR pairing was trending lower on Thursday as the Rand consolidated gains following the South African Reserve Bank rate decision.
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Before the decision the Rand was holding steady against peers like the US Dollar.
Overnight the emerging-market asset benefited from the upbeat Chinese manufacturing report and the spike in risk appetite it occasioned.
As Barclays Africa pointed out, ‘Dovish [FOMC] minutes overnight, combined with better-than-expected Chinese PMI data should ensure that the Rand maintains a firming bias into this afternoon’s monetary policy committee meeting. A rate hike at today’s meeting would be Rand positive in the short term from an interest rate differential perspective.’
Yesterday South Africa’s inflation report showed that consumer price inflation pushed above the central bank’s 6 per cent target – adding to the case for a rate increase.
The Rand was also able to adopt a firmer footing against the Pound today as a result of a report confirming UK growth of 0.8 per cent in the first quarter of the year.
While this was a positive result, investors had been hoping for a slightly stronger outcome and the data pushed the Pound lower over the course of European trading. Separate figures showed that the UK recorded a wider budget deficit than projected.
Today the SARB left the benchmark interest rate unchanged, citing weaker domestic growth prospects and the ongoing platinum sector strike.
The repurchase rate remains at 5.5 per cent, although the committee was split 5/2 on the decision.
Governor Gill Marcus stated that the outlook for domestic growth has darkened considerably in recent months as the mining strike rumbles on for an 18th week.
The SARB’s growth forecast for the year was negatively revised to 2.1 per cent from a former estimate of 2.6 per cent.
Marcus noted; ‘We are in a rising interest rate cycle and interest rates will have to be normalised soon. […] Inflation is currently at uncomfortable levels’.
The Rand continued trading in a stronger position against the Pound following the announcement.
The USD/ZAR exchange rate also held declines in spite of a US measure of manufacturing climbing by more than expected. The Markit manufacturing PMI advanced from 55.4 to 56.2 in May, climbing further away from the 50 mark separating growth from contraction.
However, other US reports weren’t quite as positive and US initial jobless claims increased by more than anticipated while existing home sales gained by less-than-hoped.
Tomorrow, South African Rand movement will be dictated by global economic developments, including China’s conference board leading index, German growth data and US new home sales.