GBPZAR – 9 June 2023

On an annualised basis GBPZAR has traded within a 47.7% range, having appreciated from lows of 18.7140 on 26 September 2022 to highs of 24.7470 on 1 June 2023 – hitting all-time highs. On 10 May, GBPZAR firmly advanced beyond the 23.7000 level of resistance (its previous all-time high), with the subsequent rally in late May pushing the pair another 420bps higher than this figure. The upward trend had been evident since the September 2022 lows, with the most recent ascending channel (detailed in blue) delivering significantly higher-highs and higher-lows.

Nevertheless, since the 1 June highs there has been a breakdown of this ascending channel with GBPZAR closing lower in all five subsequent sessions. Though the rate of the sell-off
has eased, GBPZAR now trades below the 10-day Simple Moving Average (SMA) of 23.9800. Given the pair is also trading below the respective 20 and 30-day SMA of 24.0580 and
23.7880, this suggests that profit-taking may be causing some downward pressure on
the pair.

While there has been some downward pressure on GBPZAR since hitting all-time highs,
the pair remains well above the 100-day SMA of 22.5530 and 200-day SMA of 21.5240 indicative of how the bearish market sentiment towards ZAR has fed into GBPZAR
strength.

This bearish ZAR sentiment comes as investors weigh on the possibility of US sanctions
on South Africa given claims from officials in Washington that they have been supplying weapons to Russia. President Cyril Ramaphosa denies these claims with South Africa

maintaining claims of neutrality in the Russian invasion of Ukraine. South Africa also continues to struggle with record levels of power outages (which have hampered output and investment) as well as unemployment which remains historically high at 32.9%. Growth also remains relatively stagnant in South Africa with only a marginal 0.4% expansion in Q1 2023 following a 1.1% contraction of GDP in Q4 2022.

Meanwhile, given persistently high levels of inflation, investors are weighing on the protect of further monetary tightening from the Bank of England. Indeed, with the BoE’s main policy rate at 4.5%, money markets are presently pricing in a terminal rate of 5.4%, an upward revision which has fed into further GBPZAR strength. Markets have also been buoyed on improved growth forecasts for the UK, with the Bank of England now expecting the economy to grow a quarter-of-a-percent in 2023 and three-quarters-of-a-percent in 2024 (against previous expectations of eight consecutive quarters of economic contraction from Q4 2022 to Q4 2024).