Pound Advances against South African Rand Due to PMI Data

March 3, 2015 - Written by Frank Davies

STORY LINK Pound Advances against South African Rand Due to PMI Data

The Pound Sterling advanced against the South African Rand as it received support from a better than forecast Construction Purchasing Managers Index (PMI). According to index compiled by Markit/CIPS, activity in the UK construction sector rose a whole point to come in at 60.1, a figure that beat economist forecasts for a decline to 59.0, and was the highest number seen since October last year. The data showed that activity in the majority of sectors increased with the commercial, housing and civil engineering sectors all seeing improvements.

‘The latest survey highlights renewed vitality within the UK construction sector, as output growth picked up further from the soft patch seen at the end of 2014. However, some construction companies noted that the uncertain general election outcome could prove a temporary bump in the road for new work,’ said Tim Moore, senior economist at Markit.

The strong construction data adds to the preceding sessions better than forecast UK Manufacturing PMI, which showed that activity in the sector, jumped to its highest level in seven months in February. Economists will now be looking ahead to the release of the UK Service sector PMI. If that too comes in strongly then we can expect the Pound Sterling to make gains against its major currency peers.

The South African Rand meanwhile was under pressure from expectations that South Africa could see its credit rating cut to jink status over the coming months. According to reports, Finance Minister Nhlanhla Nene has just three months to prove to the ratings agencies that he can get the country’s economy back on track. A downgrade from Standard&Poor’s would see South Africa’s rating fall to junk status, which would scare off investors. Standard &Poor’s downgraded South Africa’s rating to BBB-but changed the outlook to stable from negative in June last year. It affirmed this in December.

The currency also remained under pressure from data released earlier in the week. The South African trade deficit widened to a record high of -24.4 billion Rand, as mining exports tumbled. Overall exports fell by a whopping 23.1% whilst imports increased by 13.3%. Also weakening the currency was the publication of a weaker than forecast Kagiso manufacturing PMI report. The Kagiso purchasing managers index (PMI), which gauges activity in manufacturing, fell by a steeper than expected 6.6 index points to 47.6 in February. A below-50 reading suggests contraction in activity.

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