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GBP to ZAR Exchange Rate Slips back from Weekly Highs

April 28, 2017 - Written by John Cameron

After advancing for most of the week last week, the British Pound to South African Rand exchange rate slipped from its highs on Friday as the latest UK growth data was highly disappointing and painted a mixed outlook for Britain’s economy in 2017.

GBP/ZAR began the week trending at the level of 16.8153. The pair surged in the latter half of the week and reached a two-week-high of 17.2664 on Friday. GBP/ZAR spent most of Friday trending above the level of 17.00.
Demand for the Pound has been generally strong this week, due to a mixture of weakness in other major currencies as well as market optimism for the UK general election on the 8th of June.

Markets have been buying the Pound back in recent weeks due to hopes that a bigger Parliamentary majority for the Conservative party could lead to a smoother Brexit process.

However, Sterling was held back from its highs at the end of the week after disappointing UK Gross Domestic Product (GDP) projections for Q1 2017 were published.

UK growth was estimated to improve from 1.9% to 2.2% year-on-year, but only rose to 2.1%. Quarterly growth slowed further than expected, from 0.7% to 0.3% rather than to 0.4%.

As with recent UK retail data, this led to an increased number of analysts arguing that Britain’s economy was in for a slowdown in 2017. Much of the slower growth was due to worse services activity as UK consumers held back spending due to rising inflation and slowing wage growth.

Analysts from Barclays even argued that this slowing in UK growth indicated that the Bank of England (BoE) was unlikely to tighten monetary policy until 2019.

Despite this, Sterling was able to advance against the South African Rand relatively easily over the last week due to low demand for risk-correlated currencies.
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The Rand is an emerging market currency, and when markets are avoiding risk they tend not to favour volatile emerging markets assets.

Geopolitical tensions between the US and North Korea, as well as market disappointment in US President Trump’s proposed tax plans have increased market uncertainty.

News that the US has increased trade tariffs on Canadian lumber has also worsened concerns that it will also increase tariffs on exports from other nations.

In the coming week, there’s potential for GBP/ZAR to advance even further. Continued anticipation for the UK general election in June could keep the Pound steady as investors await Markit’s April PMIs for Britain.

If Markit’s UK services PMI beats expectations when it comes in on Thursday, it could relieve concerns that Britain’s economy is slowing. Manufacturing and construction PMIs will be published in the first half of the week.

South African PMIs for April will also be published next week, with ABSA’s manufacturing PMI on Wednesday and the standard bank PMI on Thursday.
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