GBPZAR: pound to rand hits key support on mixed signals from UK and SA

The pound to rand (GBPZAR) pair declined by more than 1% as the market reacted to the UK inflation data and the coronavirus news from South Africa.

GBPZAR reacts to UK inflation

Earlier today, data from the Office of National Statistics (ONS) showed that the country’s annual inflation rate dropped to the lowest level since 2016. The headline CPI rose by 0.8% in April, which was the lowest growth in more than five years. In April alone, the inflation dropped by 0.2%.

Meanwhile, the core inflation rose by 1.4%, which was lower than the previous 1.6%. In the statement, the ONS blamed the low inflation rate to the lower crude oil prices and low clothing and apparel prices.

The closely watched retail price index rose by 1.5% year on year, which was lower than the previous 2.6%. The core RPI rose by 1.6% from the previous 2.7%.

The pound to rand pair will then react to the testimony by Andrew Bailey, the Bank of England (BOE) governor. He is expected to answer questions about negative interest rates and the quantitative easing. He is also expected to talk about actions he is taking to support ailing British companies.

The testimony comes a day after the country’s claimant count jumped to more than 600k in April. The GDP declined by 2.0% in the first quarter and the situation is expected to worsen.

Pound to rand reacts to new South African news

The GBPZAR pair also reacted to news from South Africa. In a statement, the government said that it did not meet the criteria set by the World Health Organisation on reopening the country. This is because the number of cases is continuing to rise and is expected to peak in July. The death toll is expected to jump to between 40,000 and 45,000 by November.

The country has started to ease the restrictions, allowing some business activities such as mining and manufacturing. Also, the government is implementing a multibillion-dollar stimulus package.

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GBPZAR technical outlook

The GBPZAR pair is trading at 22.1710, which is an important level. As shown on the daily chart below, the pair formed a triple top pattern between April and May. The current price is along the important 23.6% Fibonacci Retracement level. It is also along the 50-day exponential moving average. Therefore, a break below this level will validate the fact that the bears are in total control. As such, they will attempt to test the 38% retracement at 21.1900.

On the other hand, a move above 23.000 will invalidate this prediction. This is an important psychological level, which will mean that there are more buyers of the sterling.

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