Pound South African Rand (GBP/ZAR) Exchange Rate Slumps as UK Data Lacks ‘Festive Cheer’

December 16, 2019 - Written by John Cameron

STORY LINK Pound South African Rand (GBP/ZAR) Exchange Rate Slumps as UK Data Lacks ‘Festive Cheer’

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Slips as Investors Fear BoE Cut

The Pound Sterling South African Rand (GBP/ZAR) exchange rate slumped, leaving the pairing trading at around R19.2154.

Sterling edged higher against a handful of currencies on Monday, boosted by last week’s general election results.

Following the Conservative Party win, securing a majority of 80, Pound sentiment increased.

However, the pairing edged lower on Monday following the release of disappointing flash PMI data. This showed British businesses suffered the worst downturn since mid-2016 in the run-up to December’s general election.

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

‘December’s PMI survey data sadly lacked festive cheer, indicating that the economy contracted for the third time in the past four months. The latest decline was the second-largest recorded over the past decade, and increases the likelihood that the economy contracted slightly in the fourth quarter as Brexit-related uncertainty intensified in the lead up to the general election.’

The Pound slumped against the South African Rand as investors feared the data suggests the world’s fifth-largest economy is on course to shrink during the final quarter of 2019.

In a note to clients, Capital Economics warned that the weak data could lead to a rate cut from the Bank of England (BoE), and wrote:

‘The weak flash PMIs for the UK are another piece of evidence that suggests growth flat-lined in Q4. And if there isn’t a pick-up in the surveys in the next few months, then the MPC may respond by cutting interest rates.’

South African Rand (ZAR) Rises as Negotiators Praise US-China ‘Phase One’ Deal

The South African Rand edged up against the Pound on Monday as top US trade negotiators praised the ‘phase one’ US-China trade deal.

The deal is expected to double exports from the United States to China over the next two years as well as better protection of US intellectual property.

Commenting on the ‘phase one’ deal, Mizuho Bank’s senior economist, Vishnu Varathan said:

‘[There is] no doubt that the in-principle US-China ‘Phase-1’ deal is significant step forward in reining global trade headwinds and uncertainty.

‘But it is a baby step, and limited tariff concessions amid lingering doubts warn against premature ad overdose jubilation.’

On Monday, reports showed that China has remained cautious ahead of the signing, and any gains in risk appetite were capped thanks to investor caution over a lack of details.

Added to this, a source in Beijing with knowledge of the situation noted:

‘[The deal] is a phased achievement, and does not mean that the trade dispute is settled once and for all.’

Pound South African Rand Outlook: Will Weak UK Employment Data Weigh on GBP?

Looking ahead to Tuesday, the Pound (GBP) could extend its losses against the South African Rand (ZAR) following the release of UK employment and wage growth data.

If wage growth slows to a six-month low and the UK unemployment rate rises higher than expected, Sterling sentiment will slump.

Meanwhile, if the United States and China announce a date for the signing of the ‘phase one’ trade deal, risk appetite will rise.

An increase in risk appetite is likely to lead to the Pound South African Rand (GBP/ZAR) exchange rate slumping.

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