Pound to ZAR (GBP/ZAR) forms broadening wedge ahead of BoE

The GBP/ZAR exchange rate moved sideways on Wednesday as traders reacted to the latest UK GDP and South Africa inflation data. The pair was trading at 23.85, where it has been stuck at in the past few days. This price is about 6.5% above the lowest point in November and is hovering near its highest point since September 8th.

Bank of England decision ahead

The pound to rand pair was in a tight range after the UK published weak economic numbers. According to the Office of National Statistics (ONS), the British economy contracted by 0.3% in October after growing by 0.2% in the previous month. This contraction translated to a YoY growth of 0.3%.

Additional data showed how badly the economy was doing. Manufacturing and industrial production contracted by 1.1% and 0.8%, respectively. On a YoY basis, the two expanded by 0.8% and 0.4%, respectively. 

The country’s trade metrics are also not doing well as the total trade deficit jumped to over 17 billion pounds. And on Tuesday, data by the agency showed that UK wage growth dropped sharply in November.

These numbers came on the same day that the Bank of England started its final meeting of the year. While inflation has fallen, the bank will likely push back against rate cuts bets among traders and investors.

In this case, the BoE will leave interest rates unchanged at 5.50% and hint that they will remain higher for longer. The challenge is that higher rates will lead to a deeper contraction of the economy.

The GBP/ZAR price also reacted to important economic data from South Africa. The country’s headline inflation dropped by 0.1% in November leading to a YoY growth of 5.5%. The MoM and YoY numbers were worse than expected. 

Core inflation, on the other hand, rose to 4.5%. These numbers are between the SARB target range, meaning that the central bank could start thinking about cuts in 2024.

GBP/ZAR technical analysis

GBPZAR chart by TradingView

The daily chart shows that the pound to rand pair has been in a bullish trend in the past few days. A closer look shows that the 50-day and 25-day moving averages have formed a bullish crossover. It has also formed a falling broadening wedge pattern, which is a bullish sign.

The pair has also formed an inverse head and shoulders pattern while the Relative Strength Index (RSI) has pointed upwards. Therefore, the outlook for the pair is bullish, with the initial target being at 24.50, the highest swing in August.