- GBP facing headwinds after Weale comments – BoE policymaker less hawkish
- GBP ZAR advancing on SARB forecasts – No growth for South Africa in 2016
- Pravin Gordhan warns against austerity – Spending cuts won’t boost economy, Finance Minister claims
- GBP ZAR forecast – UK GBP and ZA unemployment to weigh on exchange rates
The Pound may be dealing with headwinds of its own, but the South African Rand was weakened by forecasts of economic stagnation.
Pound Weakens after BoE Weale About-Faces on Monetary Policy Outlook
The Bank of England’s (BoE) Martin Weale had recently boosted investor confidence after talking down the idea of a near-term interest rate cut. Markets had been taken by surprise after the last monetary policy meeting yielded a rate freeze instead of the anticipated -0.25% cut to interest rates. Some analysts had even posited a resumption of the dormant QE programme. However, investor certainty that the BoE would have to respond to the Brexit vote with further monetary loosening saw markets convinced that August would see the anticipated easing. Weale had cooled expectations after noting that there was a need for firmer evidence before adjusting monetary policy, boosting the Pound on recovering market confidence.
Today, however, Weale has undermined the Pound with what has been widely labelled a U-turn. While not explicitly stating he is now in favour of cutting interest rates, Weale has commented that the economic data released since his last comments has been ‘a lot worse’ than he thought. Speaking in an interview published today, the policymaker explained;
‘I see things rather differently from what I would have done had we not had those numbers and the material point is that they were collected after July 12, so after the initial shock of the referendum. What I said last week is that I would like more information as well as more reflection and I have had more information. Although you can’t say there’s a clear signal, if you spend all the time waiting for a clear signal, it never comes.’
With the July meeting minutes showing that most members of the Monetary Policy Committee (MPC) expect to back stimulus measures at the next meeting, the fact that Weale’s outlook is now more in line with his peers has increased bets that the BoE will indeed cut rates in the August meeting – Weale’s last as a member of the MPC.
However, thanks to the latest developments in South Africa, the Pound has been able to make a bullish advance against the Rand.
South African Rand Slides after Dire Economic Forecasts from SARB
Lesetja Kganyago, Governor of the South African Reserve Bank (SARB), has issued a dovish forecast for the South African economy, significantly weakening the South African Rand. According to the latest SARB Monetary Policy Committee (MPC) statement;
‘The domestic economic growth outlook remains extremely challenging, following the contraction in GDP in the first quarter of this year. Although this is anticipated to have been the low point of the cycle, the recovery is expected to be weak. The Bank’s latest forecast is for zero per cent growth in 2016, compared with 0.6 per cent previously. Growth rates of 1.1 per cent and 1.5 per cent are forecast for the next 6 two years, down from 1.3 per cent and 1.7 per cent previously.’
The report also expected South Africa’s already huge unemployment rate – currently near 27% – to expand further.
In further dovish news, South African Finance Minister Pravin Gordhan has said that austerity measures will not provide the boost economic growth and reduce public debt as originally thought. Speaking to business leaders, Gordhan stated;
‘What’s very clear is that austerity, which we in some parts of the G20 thought was absolutely necessary … is no longer the answer. In South Africa, as well, we have some austerity fans amongst our public commentators and it’s time to rethink.’
As a result of these latest developments, the South African Rand has weakened significantly.
Pound South African Rand (GBP ZAR) Exchange Rate Forecast; UK GDP and ZA Unemployment to Provoke Volatility
Key reports for both the UK and South Africa are scheduled for release tomorrow, promising volatile trading for the GBP ZAR exchange rate.
After the recent spate of dire economic data, investor sentiment may receive a boost if the final UK second-quarter GDP figures are revised ten basis points higher as expected.
South Africa’s second-quarter unemployment rate is forecast to ease from 26.7% to 25.6%, although considering the SARB has just announced it expects higher unemployment going forward, investors are likely to view stronger figures tomorrow as being the calm before the storm.
Current GBP, ZAR Conversion Rates
The Pound South African Rand (GBP ZAR) exchange rate is currently trading between 18.6770 and 18.9010.
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