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Pound to South African Rand Exchange Rate Today: GBP/ZAR Stronger on Risk Aversion

December 17, 2014 - Written by David Woodsmith

The Pound strengthened against the South African Rand as demand for riskier emerging market assets continue to wane on growing fears that the global economy is faltering and commodity prices fall.



rand exchange rateEarlier in the session, the Rand inched higher against the Pound after the UK currency was briefly weakened by the release of weaker than forecast inflation data. According to the report released by the London based Office for National Statistics (ONS), inflation fell to its slowest pace since 2002. The consumer prices index inflation measures fell to a rate of 1% in November, a drop from the preceding month’s figure of 1.3%.

The separate retail prices index fell to its lowest level in five-years from 2.3% to 2%. The drop in inflation increases the likelihood that the Bank of England will choose to delay raising interest rates and raises investor concerns that the UK economy will slow as consumers wait for prices to drop even further.

The drop in inflation was said to be a result of tumbling oil prices and a 1.7% decline in food prices as the UK’s major supermarkets go head to head in a price war. Despite the drop, some economists saw low inflation as a positive thing for the nation’s economy. Falling inflation will allow wages to outpace price rises and consumers could be spurred to spend more as they find that they have more spare cash in their wallets.

The Rand’s gains were short-lived as the sell-off of riskier emerging market assets resumed as economists grow increasingly concerned over the state of the global economy. A report released in China showed that factory sector activity in the world’s second largest economy contracted for the first time in seven months in December. The flash HSBC/Markit manufacturing purchasing managers' index (PMI) fell to 49.5 in December from November's final reading of 50.0 and below the 50.0 forecast by analysts.

‘The manufacturing slowdown continues in December and points to a weak ending for 2014. The rising dis-inflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months,’ said Hongbin Qu, the chief economist for China at HSBC.

Risk aversion intensified as oil prices plunged below the $60 per barrel level for the first time in five years. There appears to be no end in sight for the rapid decline in prices as producers show any signs that they are ready to ease production. Economists are forecasting that oil could reach as low as $40 per barrel before producers take action.
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