Pound to Rand (GBP/ZAR) Exchange Rate Softer before SA GDP Data

Although the escalation of the situation in Thailand provoked mild risk-aversion on Friday, the emerging market Rand was holding steady against the Pound and US Dollar.

Yesterday the Rand advanced as the Reserve Bank of South Africa opted to leave interest rates unchanged despite inflation pushing above the central bank’s 6 per cent target.

Domestic growth concerns and the ongoing strike in South Africa’s platinum mining sector meant that the SARB held interest rates at 5.5 per cent.

However, the central bank did offer assurances that it is still in a tightening cycle.

Governor of the SARB Gill Marcus asserted; ‘Since the previous MPC meeting, inflation has breached the upper end of the target band and is expected to remain outside the target for some time. The domestic economic outlook has deteriorated markedly. The upward pressure is assessed to be a response to the lagged effects of the exchange rate depreciation rather than evidence of strong domestic demand pressures. The MPC still sees the risks to the inflation forecast to be skewed to the upside, and remains concerned that the current low level of pass-through may not persist.’

There was a touch of hawkishness to the announcement however as it was revealed that two members of the Monetary Policy Committee had voted for an interest rate hike.

With China’s manufacturing report pushing investors towards higher-risk assets, this news was all the boost the Rand needed to advance on the Pound on Thursday.

The USD/ZAR pairing put on a slightly patchier performance as the US Dollar was supported by a stronger-than-forecast increase in the US manufacturing PMI.

On Friday a lack of influential economic reports from both the UK and South Africa restrained movement in the Pound to Rand exchange rate.

Slight USD/ZAR fluctuations followed the release of a US housing report which showed a smaller-than-expected increase in new home sales.

Home sales climbed by 6.4 per cent in April, month-on-month, rather than the 10.7 per cent expected.

Next week the South African economic reports to be aware of include the nation’s first quarter growth figures (due out on Tuesday) PPI (out on Thursday) and Friday’s balance of trade data.