Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Rises despite Brexit Concerns

August 8, 2018 - Written by Frank Davies

STORY LINK Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Rises despite Brexit Concerns

Tuesday’s trading session opened with the Pound to South African Rand exchange rate at a level of 17.4036.

This proved to be a high point, as the Pound fell over the course of the day to close lower against the Rand at 17.2487.

In a recurrent situation, the Pound’s losses against the Rand were caused by growing concerns that the UK could be heading for an economically turbulent ‘no-deal’ Brexit.

Yesterday’s South African data was disappointing, consisting of manufacturing output data which showed a larger-than-expected slowdown during June.

While this was negative news for Rand traders, lower GBP trader sentiment at the time meant that the Pound continued to decline in the GBP/ZAR pairing.

GBP/ZAR Exchange Rate Gains Limited by ‘No-Deal’ Brexit Fears

The Pound (GBP) has advanced against the South African Rand (ZAR) today, hitting an exchange rate of 17.2577.

This appreciation is mainly down to widespread Rand weakness; in other pairings the Pound has made heavy losses.

There has been little notable UK economic data out this week, with Pound Sterling instead being influenced by speculation about a possible ‘no-deal’ Brexit outcome.

Since comments made by Bank of England (BoE) Governor Mark Carney last week, there has been a steady stream of warnings about the damage that a bad Brexit deal could cause.

The most recent words of caution have come from Scotland’s First Minister Nicola Sturgeon, who has warned that:

‘With every day that passes, the prospect of a no deal Brexit or a Brexit with very, very little information about the future relationship seems to become more and more likely.’

Putting a firm limiter on today's GBP/ZAR exchange rate gains, Mrs Sturgeon added that:

‘If [Prime Minister Theresa May] continues on her current track, trying to pretend that the Chequers deal - which even within her own party seems to be dead - is the way forward, then there's a risk we end up [with no deal], and that cannot be allowed.’

South African Rand to Pound (ZAR/GBP) Exchange Rate Slides on Disappointing Manufacturing Stats

While the Pound (GBP) has faced continued headwinds from Brexit concerns today, the South African Rand (ZAR) has found itself in lower demand by comparison.

The latest factor to dent the Rand's appeal has been Tuesday’s ZA manufacturing production readings, which showed a larger-than-expected slowdown in output levels during June.

These ecostats have sparked fears that there could be a South African recession in the future and dragged the Rand to Pound exchange rate (ZAR/GBP) down in the process.

Looking at the conditions for South Africa to dodge a recession, Investec Chief Economist Annabel Bishop said:

‘For industrial production figures to avoid a recession in the second quarter and thereby not pull GDP growth down, mining production would need to record growth of at least 4% month-on-month, seasonally adjusted for June.’

Another economist, Capital Economics’ John Ashbourne, has been pessimistic about South Africa’s prospects:

‘We expect that the economy probably just returned to growth in the last quarter, narrowly dodging another technical recession.’

Pound Sterling to South African Rand Exchange Rate Forecast: GBP/ZAR could Rise Further on GDP Data

With this week’s last major South African data now out, the way is clear for potentially greater Pound to Rand (GBP/ZAR) exchange rate gains on Friday.

The main UK data to watch out for on the day will be Q2 GDP estimates; Pound Sterling could also be supported by business investment data if it prints as expected.

A faster pace of quarterly and annual GDP growth is expected during Q2 2018, while for the same period levels of business investment are also tipped to rise.

It is worth noting that not all of Friday’s UK data releases are expected to print so positively – news of a larger trade deficit and slowing manufacturing output could limit GBP/ZAR exchange rate gains.

The next South African data to be aware of isn’t out until Tuesday next week – this will consist of mining and gold production readings for June.

There are no solid forecasts for how the gold production figure will print, but economists are expecting a negative reading for the monthly and annual mining output stats.

Such results could trigger South African Rand to Pound (ZAR/GBP) exchange rate losses, as they would have negative implications for the health of the nationally important mining industry.

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TAGS: Pound Rand Forecasts