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Pound South African Rand Exchange Rate Continues Bullish Run in Spite of Rising SA Consumer Confidence

April 25, 2018 - Written by Ben Hughes

A sharp spike in South African consumer confidence was not enough to prevent the Pound South African Rand (GBP/ZAR) exchange rate extending its gains further on Wednesday.

While consumer sentiment soared higher in the first quarter, raising the index from -8 to an impressive 26, the appeal of the South African Rand remained limited.

This was largely due to the persistent strength of the US Dollar, with market demand for risk-sensitive currencies generally diminished.

Rising US bond yields weighed heavily on ZAR exchange rates, with the 10-year Treasury yield breaking above the psychologically important three percent mark on Tuesday.

Although confidence in the Pound has remained somewhat limited since the beginning of the week thanks to persistent Brexit-based jitters the GBP/ZAR exchange rate continued to push higher.

GBP/ZAR Exchange Rate to Lose Momentum on Weaker Fourth Quarter UK GDP



Pound exchange rates have found some support in the wake of Tuesday’s positive public sector net borrowing data and CBI industrial trends survey.

Both pointed towards a healthy UK economy, even though the CBI survey did highlight some concerns over the outlook of the manufacturing sector in the face of Brexit.

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As Rain Newton-Smith, CBI Chief Economist, noted:

‘Although manufacturing growth has slowed again this month, manufacturers continue to enjoy the fruits of stronger growth in Europe and the lower pound. For manufacturing to continue its resurgence in the years ahead, it will be critical for trade to remain as frictionless as possible with the EU - our closest and biggest trading partner.’

Even though UK and EU officials remain at odds on the subject of the Irish border this has failed to particularly limit the strength of the GBP/ZAR exchange rate this week.

While debate continues to rage over the prospect of the UK remaining a part of the customs union in the wake of Brexit the upside potential of the Pound remains somewhat limited, though.

The GBP/ZAR exchange rate could be knocked off its bullish run if Friday’s UK gross domestic product data fails to impress.

Forecasts point towards a downward revision of the quarterly growth rate, with momentum thought to have eased from 0.4% to 0.3% in the first quarter.

While any slowness can largely be attributed to adverse weather conditions in February and March a weaker showing here could still put renewed pressure on GBP exchange rates.

Softer economic growth would give the Bank of England (BoE) fresh incentive to leave interest rates on hold at its May policy meeting, to the detriment of the Pound.

If policymakers take note of the weakness of recent domestic data and opt not to deliver a rate hike at this stage the mood towards the Pound is likely to sour significantly.

On the other hand, if growth holds steady at 0.4% this could boost hopes that the BoE may still tighten monetary policy at its next meeting.

Weakening SA Producer Prices Forecast to Support South African Rand Exchange Rates



The South African Rand could find some support tomorrow if March’s producer price index data prints positively.

With inflationary pressure thought to have eased slightly on the year this should give the South African Reserve Bank (SARB) cause for confidence.

Friday’s trade balance figure may provoke additional volatility for the GBP/ZAR exchange rate, particularly if it returns to a state of deficit.

Any deterioration in trade conditions could weigh heavily on the appeal of the South African Rand, highlighting the continued vulnerability of the domestic economy.

Unless March saw a widening of the previous month’s trade surplus ZAR exchange rates are likely to remain on a softer footing.

Market sentiment could also keep the Rand under pressure, with investors still betting that the Federal Reserve will take a more aggressive approach to monetary tightening in 2018.

If global trade tensions flare up once again this could give the GBP/ZAR exchange rate an additional boost, although any rally in metal prices should see the Rand pushing higher against its rivals.
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