GBP/ZAR Exchange Rate Forecast: Can the UK Sustain its Rebound in Inflation?

GBP/ZAR Exchange Rate Dips Despite Solid UK Inflation Figures

The Pound South African Rand (GBP/ZAR) exchange rate is trading on the back foot this morning as an uptick in UK inflation failed to inspire confidence in GBP investors.

At the time of writing the GBP/ZAR exchange rate is currently trading at around ZAR22.8374, up around 0.4% from this morning’s opening levels.

Pound (GBP) Dips on Concerns Rise in Inflation is Unsustainable

The Pound (GBP) finds itself on the defensive against the South African Rand (ZAR) this morning, in spite of the UK’s latest consumer price index reporting a surprise jump in inflation last month.

According to data published by the Office for National Statistics (ONS), UK inflation climbed 1% year-on-year in July, beating forecasts it would stall at 0.6%, while also avoiding slipping into a state of deflation month-on-month.

The bump in inflation was attributed to rising clothing, transport and haircut prices, as consumers returned to the high street after months of lockdown.

While last month’s rebound in inflation was welcomed by GBP investors, it failed to offer much support to the Pound this morning.

This is likely due to concerns that the rise in inflation will not be sustained in the months to come.

Ruth Gregory, Senior UK Economist at Capital Economics, comments:

‘Retailers may need to do more to entice people through the doors in the coming months. And food price inflation may continue to fall back as the re-opening of restaurants and cafes causes demand for supermarket food to decline.

‘What’s more, in August, the effects of the cut in the VAT rate for hospitality/tourism and the ‘Eat Out to Help Out’ (EOHO) restaurant discount scheme will kick in.

‘If 50% of eligible businesses pass on the VAT cut and 50% participate in the EOHO scheme, then inflation may fall by 0.7ppts.’

Should inflation retreat again, it is likely to stoke speculation that the Bank of England (BoE) could still explore the possibility of negative interest rates in the coming months.

South African Rand (ZAR) Buoyed as Coronavirus Lockdown Measures Eased

At the same time, the South African Rand (ZAR), is trending higher this morning on the back of widespread US Dollar (USD) weakness as well as optimism over the further easing of South Africa’s lockdown measures.

From today, South Africans will be able to purchase alcohol and cigarettes again after they were banned five-months ago in order to relieve pressure on hospitals.

This follows the easing of more of the country’s strict lockdown over the weekend.

This has bolstered hopes that South Africa’s beleaguered economy could return to growth later this year and help to pull the country out of a recession it fell into even before the coronavirus crisis.

Reprinted from investing.com, the copyright all reserved by the original author.

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