September 11, 2020 - Written by Frank Davies
STORY LINK Pound South African Rand (GBP/ZAR) Exchange Rate Shakes off Stronger SA Manufacturing Production
Improved Manufacturing Production Not Enough to Dent Pound South African Rand Exchange Rate
Stronger-than-expected South African manufacturing production figures were not enough to keep the Pound Sterling to South African Rand (GBP/ZAR) exchange rate from pushing higher on Thursday.
While monthly production saw another solid uptick on the month investors were disappointed to find that some of the momentum seen in June had started to fade.
The manufacturing data was also overshadowed by the second quarter current account figure, which proved even more discouraging in nature.
As the current account fell back into a state of deficit in the second quarter worries over the health of the South African economy naturally picked up.
Although investors had anticipated a return to deficit from the current account the scale of the shortfall caught markets off guard, which represented a 2.4% ratio of gross domestic product.
Pound Steadies in Spite of Latest Tensions over UK’s Internal Market Bill
GBP exchange rates saw a temporary reprieve from Brexit tensions, meanwhile, as market focus turned towards other major market movers.
Even so, with EU lawyers indicating that the UK has already breached the withdrawal agreement by tabling the Internal Market bill the potential for fresh volatility remains.
Although the two sides went ahead with the penultimate round of Brexit negotiations the lingering risk of a no-deal scenario kept a lid on demand for the Pound.
With the UK economy looking set to face further disruption before the end of the year, thanks to the uncertainty stemming from Brexit, the GBP/ZAR exchange rate struggled to make any major gains.
Friday’s raft of UK data could give the Pound further cause for weakness if the latest production and trade figures fail to impress.
Unless the economy can demonstrate greater evidence of recovery in the wake of the initial wave of the Covid-19 crisis the mood towards the Pound could sour once again.
South African Rand at Risk of Downturn on Softer Business Confidence Index
The appeal of the South African Rand could deteriorate further, on the other hand, if August’s SACCI business confidence index weakens.
As the South African economy had shown signs of weakness even before the advent of Covid-19 investors remain sensitive to any fresh evidence of a slowdown.
However, if business confidence delivers a monthly uptick this could encourage a rally for ZAR exchange rates ahead of the weekend.
Even if business sentiment leans towards greater optimism, though, the South African Rand may still falter in response to any renewed sense of market risk aversion.
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TAGS: Pound Rand Forecasts