GBP ZAR Exchange Rate Near Monthly Lows after Surprise UK GDP Slowdown

May 25, 2017 - Written by Frank Davies

STORY LINK GBP ZAR Exchange Rate Near Monthly Lows after Surprise UK GDP Slowdown

The Pound’s poor performance today follows the release of second estimates for UK GDP growth in the first quarter. On the positive side, the annual estimate has been revised up from 1.9% to 2%; this notably fell short of the predicted 2.1%.

The more impactful and damaging news, however, has been that quarter-on-quarter growth has been revised down from 0.7% to 0.2%, more than the forecast 0.3%.

This worse-than-expected slowdown has dented demand for the Pound and raised significant questions about future UK economic performance.

Tapping into speculation about the Bank of England’s (BoE) reaction, Sam Hill of Royal Bank of Canada predicted;

‘The BoE’s ‘backcast’ has 0.4% [quarterly growth] in for Q1, so this revised outturn of 0.2% is marginal downside news for policymakers. In our view, this GDP report reinforces the existing case for not responding to above-target inflation. Indeed, we continue to see the risk that the slowdown in activity becomes more entrenched and ultimately results in monetary policy being loosened in Q1 2018’.

This cautious outlook means that even if UK inflation continues to rise far beyond the 2% target, poor wage growth and GDP figures may prevent an interest rate hike for the foreseeable future.

The next Pound to Rand-affecting news will be the coming Wednesday’s GfK consumer confidence measure for May. This previously showed a negative score of -7, so the Pound could remain weak if it doesn’t move closer to a positive range.

The Rand’s advance against the Pound today comes from a regular source of movement – news about President Jacob Zuma.

Zuma remains a controversial leader in South Africa, with his previous economic decisions frequently causing significant Rand devaluations. The most recent was his dismissal of Finance Minister Pravin Gordhan, a controversial move given Gordhan’s good record of managing the economy.

This has led opposition groups to try and remove Zuma from power, although efforts so far have been unsuccessful.

The latest Rand appreciation is attributed to a meeting of the National Executive Committee (NEC), the governing body of South Africa’s ruling African National Congress (ANC) party.

According to NEC officials, Zuma’s future will be discussed at the meeting, which has already raised trader optimism.

Credit Agricole’s Guillaume Tresca has forecast that the Rand could rise higher if Zuma’s Presidency is threatened;

‘The potential dismissal of President Zuma from the ANC is not fully priced in. It is not yet a done deal but any moves that put pressure on President Zuma will be seen positively by the markets’.

The NEC may make some key announcements on Friday; if the body turns against Zuma’s controversial reign, then the Rand could rally to unprecedented levels. If the President seems unlikely to be removed anytime soon, however, then heavy ZAR GBP losses could be seen.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Daily Currency Updates Pound Rand Forecasts