Pound to Rand (GBP/ZAR) Exchange Rate Trending around 18.1460, Sheds 0.25

With the South African Reserve Bank’s decision to increase interest rates bolstering the domestic currency last week, the Pound to Rand (GBP/ZAR) exchange rate was trending in a slightly softer position on Monday.

South Africa’s central bank opted to hike borrowing costs by 25 basis points following its policy meeting on Thursday. This took the rate to 5.75% and inspired widespread Rand gains.

Concerns over South Africa’s rising inflation levels were largely responsible for the central bank’s decision.

Some economists had expected that South Africa’s poor economic performance and the ongoing strike in the nation’s metalworking sector would prevent the SARB increasing interest rates at this present juncture, but the Monetary Policy Committee voted 6-1 in favour of the decision.

In the view of SARB Governor Gill Marcus; ‘The monetary policy stance remains supportive of the domestic economy, and, as before, any future moves will be gradual and highly data dependent. […] Although inflation expectations have remained relatively anchored, should inflation persist outside the target band, these expectations risk becoming dislodged.’

On Monday the Rand was clinging to last week’s gains and the Pound to Rand (GBP/ZAR) exchange rate was trending around 0.25% lower.

However, Sterling could recoup losses over the next few days if the UK’s economic reports meet or exceed expectations.

Investors will also be paying particularly close attention to the minutes from the Bank of England’s July policy meeting.

If the minutes show that any of the nine-member Monetary Policy Committee voted in favour of hiking borrowing costs, the Pound will be boosted and the British asset could touch fresh highs against several of its most influential currency counterparts.

Other UK reports scheduled for publication over the next few days, including the nation’s retail sales data and second quarter growth figures, could give the Pound an additional boost if they show further signs of resilience in the UK’s economic recovery.

In the opinion of David Tinsley, a former official with the BoE, ‘The story continues of a pretty consistent and fast rate of growth. Policy makers will need to think about tightening. We’re getting close to the point where the first MPC member votes for a hike.’

The only South African data to be particularly aware of this week is the nation’s inflation rate figure, due out on Wednesday.

Any developments in the National Union of Metalworkers of South Africa strike (which has now been dragging on for over three weeks) could have a considerable impact on the Pound to Rand (GBP/ZAR) exchange rate over the next few days.