Good News for UK Employment, but Inflation Prospects Still Poor
Pound Sterling (GBP) has been buoyed today by figures which show UK employment hit an all-time high in the three month period to November last year. While this has strengthened the Pound, the persistently low rate of wage increases, which undercut expert forecasts by -0.1%, continues to keep inflationary pressures soft.
ZAR Slumps as IMF Slashes South Africa’s Growth Forecast
Weak commodity prices and the higher cost of borrowing will drag on South Africa’s economic growth in 2016, according to the International Monetary Fund (IMF). The Fund has recently revised its global outlook, cutting the forecasts for several major economies along with it. The prognosis for South Africa is among the most dovish, with the IMF having nearly halved its growth prediction to just 0.7%. The forecast is 1% lower than the growth rate postulated by the South African National Treasury.
Yesterday…
Bank of England (BoE) Governor Mark Carney has once again set Pound Sterling on a downtrend with another set of dovish comments regarding the global economy and the future of UK interest rates. While South Africa is currently suffering from the worst drought since records began, it has been able to make bullish advances on Pound Sterling.
Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Plummets After Carney Speech
Earlier Pound gains today have been erased by comments from Mark Carney after he offered a dovish outlook on the global economy and UK growth. The Pound had been bolstered by today’s Consumer Price Index figures, which showed the fastest rise in 11 months. The non-core index increased 0.1% to 0.2% year-on-year (YoY) in December, while the core index posted 0.2% higher than the 1.2% forecast. Monthly prices were up 0.1%, surprising predictions of no change.
The figures had seen Pound Sterling making strong advances, but the rise was short lived and now the Pound is floundering in negative territory across the board. Citing the collapse in the price of oil as a result of global oversupply, the slowdown in the Chinese economy and the persistently weak levels of inflation and wage growth in the UK, Carney said that there was plenty of evidence against tightening monetary policy.
While acknowledging that the date of the next interest rate hike had been pushed back by recent developments, Carney declined to provide a timeframe for action by the BoE, stating that ‘monetary policy will continue to depend on economic prospects and not the calendar.’
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate is currently trending in the region of 23.7440.
South African Rand to Pound Sterling (ZAR/GBP) Exchange Rate Strong Despite Drought Threatening Recession
South Africa continues to experience the worst drought in over 100 years, threatening to dent agricultural output and tip the country into recession. According to the National Weather Service, 32 temperature records were broken within the first two weeks of 2016 alone. The lack of rainfall has already harmed production, contributing to a -30% drop in maize production. Futures for white maize, one of the key food staples among South Africa’s low income houses, have increased in price by more than 100% over the past year. Although agriculture is only responsible for 2.2% of South African GDP, a looming food shortage could require R12 billion (£0.5 billion) of food to be imported. As a result, the National Agricultural Marketing Council is predicting that food prices could continue to increase by as much as 20%.
The ZAR/GBP exchange rate is currently trading between 0.0416 and 0.0422.
Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Forecast: SA Inflation Data on Tap
South Africa is due to release inflation figures tomorrow, with year-on-year (YoY) inflation predicted to rise from 4.8% to 5.3%. Retail Sales figures are anticipated to have fallen YoY in November, dropping from 3.3% to 2.9%. The UK has labour market data on tap for tomorrow, with traders likely to pay close attention to the Average Weekly Earnings figures, which are expected to fall.
The GBP/ZAR exchange rate is currently trading between 23.6120 and 24.0200.
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