GBP ZAR broke to a multi-year high of 13.3942 during the middle part of this month, and the pair held below this level throughout last week’s session. Two major factors have suppressed GBP ZAR over the past seven days; firstly – the relatively soft tone of UK data releases. Tuesday’s UK CPI inflation figure, Wednesday’s British Retail Sales number and Thursday’s revised Q1 GDP growth figure for the UK economy, all came in at below analysts’ expectations, weighing down the GBP ZAR exchange rate.
Meanwhile, on the other side of the coin, South African data and central bank comments were generally helpful to the Rand. Wednesday’s domestic inflation figure showed an increase in the rate of domestic price rises from 6.0% in March to 6.1% last month. With the figure registering above the top end of the government’s stated target range of 3.0-6.0%, there appeared to be little chance that the South African Reserve Bank would trim its benchmark repurchase rate of interest from its current record-low of 5.5%, at Thursday’s policy meeting. SARB Governor Gill Marcus did not spring any surprises when she announced a ‘hold’ decision on interest rates the next day.
Few eyebrows were raised when Marcus went on to allude to the ‘greater uncertainty in Europe and associated global financial market uncertainty’ – such observations have become a near-staple of recent comments from central bankers. However, Marcus put a new slant on the effect the eurozone’s ongoing debt crisis could have on the Rand, stating that a deterioration of the situation in Europe could weaken the risk-sensitive Rand further, triggering an increase in domestic inflation, which would in turn necessitate an increase in South African interest rates later in the year – a move which would be highly supportive to the Rand.
As this week’s session got underway, the GBP ZAR exchange rate eased further, to briefly break back below the 13.0000 level during yesterday’s session. However, the downward drift of the past two weeks is by no means guaranteed to continue, given the deterioration in Spain’s fiscal situation either side of last weekend’s close. Fears over the creditworthiness of the troubled Iberian giant’s retail banking sector caused the interest rates on the Spanish government’s bonds to soar to close to the 7% level, considered untenable in the medium term, during trading yesterday. More bad news from Spain, (or Greece, or Portugal, or Italy….), will hurt the risk-sensitive Rand, bringing 13.3942 back into view for GBP ZAR in the near-term.