The GBP/ZAR exchange rate was softer on Friday as the Rand received support from increased demand for higher yielding assets.
The Pound to South African Rand (GBP/ZAR) exchange rate experienced mixed trading on Wednesday as the latest policy meeting minutes released by the Bank of England supported Sterling and positive inflation data aided the Rand.
Sterling rallied from weekly and monthly lows against a number of major peers after the BoE minutes showed that policy makers voted in favour of leaving interest rates lower at 0.5% but showed that the vote was not unanimous.
The minutes showed that policy makers Martin Weale and Ian McCafferty voted in favour of raising rates as they argued that the policy committee should ignore falling inflation. They argued that the committee had refrained from raising rates even when rising oil prices were pushing inflation higher so that it should resist keeping them low now.
‘For two members, economic circumstances continued to justify an immediate rise in Bank rate. While CPI inflation was well below the target, this was largely the effect of the higher exchange rate and lower raw material prices. Just as the committee had looked through the first-round effects of external price pressures when they had pushed inflation up, it was appropriate to look through them at present when they were pushing inflation down,’ said the BoE minutes.
With some economists being more dovish and others being hawkish over the UK economy, it is hard to gauge how the UK economy is actually performing.
Earlier in the session, the South African Rand managed to trade higher against the Pound after Statistics South Africa released data, which showed that inflation rose by 0.2% on a month on month basis between September and October.
The data was not strong enough however to convince economists that Reserve Bank of South Africa will raise interest rates on Thursday.
‘Although it is unlikely that interest rates will rise this week, one cannot rule out the possibility that interest rates will rise in the medium term. The Reserve Bank has stated that the domestic economy is in a rising interest rate cycle and that there is a need to ‘normalise’ interest rates to encourage savings and investment in the South African economy,’ said Laura Campbell, economist at Econometrix.
