Pound to South African Rand Stronger As Investors Ditch Riskier Assets

June 3, 2015 - Written by James Fuller

STORY LINK Pound to South African Rand Stronger As Investors Ditch Riskier Assets

Pound to South African Rand Stronger As Investors Ditch Riskier Assets

The Pound to South African Rand exchange rate advanced for a second consecutive session as concerns over a possible Greek default and exit from the Eurozone caused investors to ditch riskier assets and instead seek shelter in safer haven assets. Against the US Dollar, the Rand tumbled by more than 1% and fell to a session low of 18.5690 against the Pound. Also weakening the Rand was the release of disappointing economic data out of China and a further decline in global commodity prices.

‘We’re seeing weakness across all emerging market currencies... the focus still remains on Greece and risks surrounding Greece so there’s risk-off sentiment being driven from the development. Also we had weak Chinese economic data out on Monday, with the HSBC PMI number contracting for the third consecutive month, so that will obviously weigh on currencies such as the Rand which are exposed to Chinese demand,’ said Ricardo Da Camara, a market analyst at ETM.

Greece has to repay €300 million by Friday to the International Monetary Fund, but most economists now fear that the nation will be unable to do so. The country’s creditors in the European Union have gambled that if they take matters down to the wire the Greeks would give in and acquiesce to their demands. Now that no deal is likely, German Chancellor Angela Merkel called an emergency meeting to discuss the matter. Germany’s minister for Economic Affairs, Sigmar Gabriel raised the stakes further after warning that Greek bankruptcy would have ‘gigantic consequences’.

‘The Rand has been excessively hit in the generalised emerging market sell-off and may be able to make some mild gains today, but the overall trend is towards weakness in an event filled week. Greek concerns will remain in focus. Expect attention and global risk aversion to rise ahead of Friday, even if Greece somehow manages to keep on living beyond each supposed deadline,’ said John Cairns an economist from Rand Merchant Bank.

The Pound Sterling received support as data showed that construction activity rebounded after the sector enjoyed a post-election boost. The Markit compiled construction PMI advanced from the 22-month low of 54.2 in April to 55.9 in May. Economists had been expecting an improvement to 55.

The sector was bolstered after the Conservatives won a surprise majority at the general election, as the party had pledged to increase the number of homes being built.

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