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Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Flat as UK Private Sector Falls into Contraction for the First Time in 35 Months

July 3, 2019 - Written by John Cameron

Pound South African Rand (GBP/ZAR) Exchange Rate Muted as UK Service Sector Close to Stagnation

The Pound Sterling South African Rand (GBP/ZAR) exchange rate remained muted and the pairing is currently trading at an inter-bank rate of R17.7217.

Sterling remained under pressure as the UK services PMI edged down from 51 in May to 50.2 in June due to subdued activity and Brexit uncertainty.

Service sector output edged closer to stagnation as business activity only rose fractionally last month.

Added to this, the UK All Sector Output Index slumped to a disappointing 49.2 in June from last month’s reading of 50.7.

Meanwhile, business activity in the private sector suffered from the first slump in 35 months which further dampened sentiment in the Pound.

Commenting on the data, Chief Business Economist at IHS Markit, Chris Williamson noted:

‘The near-stagnation of the services sector in June is one of the worst performances seen over the past decade and comes on the heels of steep declines in both manufacturing and construction. Collectively, the PMI surveys indicate that the economy has slipped into contraction for the first time since July 2016, suffering the second-steepest fall in output since the global financial crisis in April 2009.

‘The June reading rounds off a second quarter for which the survey points to a 0.1% contraction of GDP.’

Lower than Forecast Data Leaves South African Rand (ZAR) Muted

On Wednesday morning, data showed that South African Business Confidence Index edged up slightly in June.

The South African Chamber of Commerce and Industry (SACCI) revealed the index rose from 93 in May to 93.3 in June.

However, confidence remains below levels from a year ago as the first half of 2019 was plagued with weak economic data and power blackouts.

Meanwhile, earlier data showed that the Standard Bank South Africa PMI rose slightly from 49.3 to 49.7 in June.

However, this was still below the 50-mark and data revealed that new orders fell further while employment only edged up slightly.

It is likely the lower-than-expected data from South Africa left the Rand under pressure, causing the pairing to remain muted on Wednesday.

Sterling (GBP) Muted as Carney Warns Trade Tensions Could ‘Shipwreck’ the Global Ecnomy

Meanwhile, on Tuesday the Pound was left under pressure following a dovish speech from the Bank of England’s (BoE) Governor, Mark Carney.

Carney warned that the current global trade tensions could ‘shipwreck’ the global economy.

The Governor also noted that the global economy is in a ‘widespread slowdown’ which weighed on Sterling.

Commenting on the state of the economy over the past year, Carney stated:

‘Over the past year, the global economy has shifted from a robust. Broad-based expansion to a widespread slowdown.’

Pound South African Rand Outlook: Will Sterling Remain Under Pressure Ahead of the BoE’s FPC Meeting?

Looking ahead to Thursday, it is likely the Pound (GBP) will slide against the South African Rand (ZAR) following the release of the UK’s new car sales data.

If new car sales plummet in June it could dampen sentiment in Sterling.

Meanwhile, on Friday morning the Bank of England’s Financial Policy Committee meeting is expected to take place.

It is likely Sterling will remain under pressure ahead of the meeting, and the Pound South African Rand (GBP/ZAR) exchange rate could slide.

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