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GBP ZAR Exchange Rate Fluctuates as Irish Border Proposals Criticised

December 1, 2017 - Written by John Cameron

The Pound South African Rand (GBP ZAR) exchange rate is fluctuating this morning following the news that the Brexit Committee has expressed doubts over the UK government’s proposals to solve the post-Brexit border with Ireland.

Pound (GBP) Stumbles on Irish Border Concerns

Sterling came under pressure this morning as MP’s appeared sceptical over the UK government’s plans for a ‘frictionless border’ between the Irish Republic and Northern Ireland.

While the government has proposed that technology will avoid the need for a hard border between the two states, while also preventing the need for a spate customs border within the UK, the Committee for Exiting the EU suggested that the proposals were ‘untested’ and ‘to some extent speculative’.

Markets fear that this may mean that the UK government is not as close to a ‘breakthrough’ over the border as some observers had suggested, something that could possibly derail the chances of Brexit trade discussions beginning by the end of the year.

However the Pound was able to stage a bit of a comeback this morning as the UK’s latest manufacturing PMI surged past expectations.

According to figures published by IHS Markit the UK’s manufacturing PMI rocketed up from 56.6 to 58.2 in November, beating expectations of the index would strike 56.5 and reaching a new four-year high.

Even more positive was the Pound was the suggestion that today’s data shows evidence that capital spending is rising, and that the uptick in activity may persist over the coming months.

Rob Dobson, Director at IHS Markit said;

‘The breadth of the rebound is also positive, with growth strengthening across the consumer, intermediate and investment goods industries. Of real note was a surge in demand for UK investment goods, such as plant and machinery, with new orders for these products rising to the greatest extent in over two decades. This suggests that capital spending, especially in the domestic market, is showing signs of renewed vigour.’

The jump also lend support to forecasts that the UK economy will have performed a little stronger in the fourth quarter.

South African Rand (ZAR) Weakened as Domestic Manufacturing Sector Continues to Contract

Meanwhile the South African Rand was forced to relinquish some of its gains this morning following the release of the country’s own manufacturing PMI.

While the latest index showed a slight improvement as it rose from 47.8 to 48.6 in November, the PMI showed that activity contracted for the sixth consecutive month as it remained below the 50-point mark.

Absa said in its accompanying statement;

‘This was the fourth consecutive increase and brought the index to the best level since May 2017. However, the PMI remained stuck below the neutral 50-point mark for a sixth straight month, suggesting that the sector still faces headwinds.’

GBP ZAR Forecast: UK Service Sector Growth to Slow?

Looking ahead to next week the GBP ZAR exchange rate may slip again in the first half of the session as the UK releases is all-important Services PMI on Tuesday.

Economists forecast that data will show activity in the service sector will have slowed slightly last month likely weighing on Sterling sentiment.

However this could be overlooked by investors if focus returns to Brexit as the UK and EU meet for the next round of talks, with any hint that progress is being made lending strength to the Pound.

Meanwhile the South African Rand may tumble on Tuesday with the publishing of the country’s latest GDP figures, with economists forecasting a sharp decline in growth in the third quarter.

Current Interbank Exchange Rates

At the time of writing the GBP ZAR exchange rate was trending around 18.5905 and the ZAR GBP exchange rate was trending around 0.0537.

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