Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Plummets Despite South African Political Chaos
Pound Sterling has slumped more than -1.6% against the South African Rand despite positive UK inflation data and the political chaos which has ensued in South Africa following the succession of finance minister appointments by President Jacob Zuma.
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GBP/ZAR Exchange Rate News: Positive CPI Doesn’t Change Likelihood of a Bank of England Rate Hike
Investors had expected the Bank of England (BoE) would follow the US Federal Reserve with an interest rate hike if the Federal Open Market Committee (FOMC) do decide to increase rates tomorrow. However, following another dovish decision by the BoE and continued sluggish inflation, anticipation of a copycat rate hike by the Monetary Policy Committee (MPC) has cooled.
While today’s inflation data performed as expected as the UK escaped from deflation, with the non-core CPI rising to 0.1% year-on-year (YoY), while the core CPI reached 1.2%, the rate of inflation remains far below the BoE target of 2%. The consumer index saw no monthly growth. According to the Bank of England, inflation will rise above 1% during the second half of 2016, with many investors believing a rate hike will quickly follow. Others, however, have pegged their expectations on the first change in monetary policy happening in 2017.
The GBP/ZAR exchange rate is currently trending in the region of 22.4900.
ZAR/GBP Exchange Rate Forecast: Rand Rebounds From Historic Drops
South African President Jacob Zuma’s decision to fire trusted finance minister Nhlanhla Nene caused South African currency markets, stocks and bonds to crash on Friday. The shock saw investors judging South Africa to be as risky an investment as Nigeria: a West African country with a credit rating four levels worse than South Africa’s, as well as a reputation for political upheaval and corruption.
The turbulence continued over the weekend and yesterday saw another shock as Zuma bowed to pressure from the markets and replaced Nene’s successor – the unknown and underqualified David Van Rooyen – with a previous finance minister, Pravin Gordhan.
According to the National Working Committee, a group that is comprised mostly of members of South Africa’s ruling African National Congress party, ‘The ability of the leadership to review their positions in the face of legitimate concerns of our people are the hallmarks of a listening, responsive and accountable organization.’
After such heavy losses, the South African Rand is making bullish gains on several major currencies, including the Euro (EUR) and the US Dollar (USD). The currency plummeted following trader panic, with investors deserting stocks and bonds, but a returning confidence (thanks in part to a proven and trusted finance minister being appointed) has seen many traders return to the Rand, pushing exchange rates back up.
The ZAR/GBP exchange rate is currently trading between 0.0435 and 0.0444.
GBP/ZAR Exchange Rate Forecast: UK Data Due Tomorrow, Fed Decision Could Dominate Currency Markets
UK labour market data, due out tomorrow, is likely to show a slowdown in hiring and a drop in wages. South Africa will release its Producer Price Index (PPI) tomorrow as well, which is likely to show a drop in monthly costs and a yearly rise.
The data could be overlooked later in the day when the US Federal Reserve announces their decision on interest rates.