An exciting week lies ahead for the British Pound, with potential implications for South Africa’s foreign exchange (forex) market. Economists at Société Générale have analysed the outlook for the GBP.

Pound Technically Stretched

From a technical perspective, the Pound is stretched following the impressive gains of last week. However, the 1.30 level may not be an insurmountable obstacle if the Bank of England (BoE) signals additional tightening this summer and risk sentiment remains stable. This could mean that the bank rate could leapfrog the federal funds rate in the US, a development that could influence the GBP/ZAR exchange rate.

Selling of EUR/GBP also remains a popular strategy as 2-year Gilt yields cross 5% for the first time since July 2008. This inflates the spread over German yields to 185 basis points, which could potentially influence the EUR/ZAR and GBP/ZAR exchange rates.

A key event to watch this week is the publication of the Consumer Price Index (CPI) for May, which will be released on Wednesday, one day before the BoE rate decision. Economists at Société Générale forecast a +25 basis points increase this week and a further +25 basis points to 5.0% in August.

For South African investors and traders, these developments could potentially influence their forex trading strategies. The anticipated tightening by the BoE and the potential for the GBP/USD to breach the 1.30 level could lead to volatility in the GBP/ZAR exchange rate. As such, investors and traders should monitor these developments closely and adjust their strategies accordingly.