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Pound to Rand (GBP/ZAR) Exchange Rate Weakens on UK Data

January 6, 2015 - Written by Ben Hughes

The Pound weakened against the South African Rand and posted losses against all of its most traded peers after UK economic data came in below market expectations, spurring investors to increase their bets that the Bank of England will choose to refrain from hiking interest rates anytime soon.



The Rand also managed to slow its recent run of declines against the US Dollar as bonds traded close to one-month highs as expectations build that more monetary stimulus measures will be introduced by the European Central Bank later in the month. The chances of the ECB implementing a quantitative easing programme heightened as data out of Germany showed that inflation fell again in December and as data out of the wider Eurozone highlighted the ongoing weakness in France, Italy and Germany.

The Rand firmed against Sterling even as domestic South African data came in worse than forecast.

According to HSBC South Africa’s private sector expanded at its slowest pace in five months last month as new orders and output declined. The nation’s service sector Purchasing Managers Index (PMI) fell from November’s figure of 50.5 to 50.2 in December.

‘Following a temporary boost to economic activity after the resolution of protracted strikes, the headline PMI suggests the economy has settled back into a pattern of sluggish growth. Worsening demand conditions principally reflected waning domestic demand, since export orders expanded for the fourth consecutive month and at their strongest pace for almost two years,’ said HSBC economist David Faulkner.

Despite the negative South African PMI data, the Rand was still able to make gains against the Pound Sterling. Economic data compiled by Markit economics showed that growth in the UK’s dominant services sector slowed to its weakest pace in 19-months.

The service sector PMI fell to a reading of 55.8 in December, a drop from the figure of 58.6 seen in November and was the weakest level seen since May 2013. Economists had been expecting a figure of 58.5. In a PMI any figure above 50 indicates expansion whilst a number below indicates contraction.

‘The loss of momentum toward the years end will no doubt fuel worries that the upturn is too fragile to withstand higher interest rates. The survey data provide policy makers with a mixed bag of news on the health of the economy,’ said Chris Williamson, chief economist at Markit economics.

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