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GBP ZAR Exchange Rate Drops -0.8% on Fears of Growing UK Unemployment

May 15, 2017 - Written by Toni Johnson

The GBP ZAR exchange rate has fallen to 17.10 today, which is the worst rate since late April.

The sharp Pound to Rand downturn has largely been caused by pessimistic UK economic forecasts. One of the biggest has been EY Item Club’s estimate for UK unemployment.

The group predicts UK unemployment to remain around 4.7% in 2017, but for a greater jobless rate at 5.4% in 2018 and 5.8% in 2019.

Item Club Senior Economic Advisor Martin Beck has explained the reasoning behind the projection;

‘The UK labour market may be starting to become a victim of its own success. As the proportion of people in work has climbed, firms may have found it more difficult to fill vacancies, resulting in greater utilisation of the existing workforce and slower jobs growth’.

Beck has not been entirely gloomy, however, estimating that;

‘On a positive note, slower growth in the workforce may deliver a boost to what has been a long period of insipid productivity growth. With the flow of potential workers slowing, firms are likely to have more incentive to invest in improving efficiency or labour-saving technology’.

Slightly more positive news has seen Lloyds Bank issue an optimistic outlook on the UK’s economic health. The bank has estimated that the UK economy will continue to grow during the summer, despite potential uncertainty from the Brexit process.

The Pound may rally against the Rand after Tuesday’s inflation rate figures are announced, particularly if the annual result for April matches forecasts.

Expectations are for a rise from 2.3% to 2.6%, which would push inflation further above the Bank of England’s (BoE) 2% target. This could pressure the BoE to react and raise UK interest rates, an implication that could raise Pound demand beforehand.

Significant Rand to Pound gains today have been partly caused by global precious metal prices.

The cost of two key South African mining exports, gold and copper, has risen today, raising profits for ZA exporters and boost Rand demand in the process.

Elsewhere, discussions have been circulating about a secret ballot for a vote of no confidence against President Jacob Zuma. Zuma has been a deeply controversial leader in South Africa, responsible for major Rand devaluations on his questionable economic decisions.

Despite widespread dissatisfaction, Zuma has always survived attempts to oust him, largely because of his own ANC party’s support.

If a secret vote were conducted, it could inspire ANC members to turn against Zuma, finally deposing him and potentially triggering a major Rand rally.

This week’s biggest South African data releases will be retail sales figures on Wednesday, which showed annual contraction in February. If March reveals year-on-year growth, the Rand could appreciate further against the Pound.

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