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Pound South African Rand Exchange Rate Gains Ground on SA Retail Sales Contraction

January 21, 2021 - Written by Frank Davies

Pound South African Rand Exchange Rate Rallies as SA Retail Sales Tumble

As South African retail sales contracted further than forecast in November this helped to boost the Pound Sterling to South African Rand (GBP/ZAR) exchange rate.

A -4% drop in sales on the year suggests that confidence among consumers remained limited during the fourth quarter, keeping the South African Rand on the back foot.

Growing worries over the outlook of the South African economy kept ZAR exchange rates biased to the downside, even as the general sense of market risk appetite remained elevated.

Even though the South African Reserve Bank (SARB) opted to leave interest rates on hold this failed to encourage any particular demand for the Rand.

While the central bank indicated that interest rates could start to tighten sooner than previously suggested the GBP/ZAR exchange rate remained on a positive footing.

UK Services PMI Contraction Set to Weigh on GBP/ZAR Exchange Rate

Confidence in the outlook of the UK economy looks set to take a fresh blow ahead of the weekend, though, with the release of the latest manufacturing and services PMIs.

Forecasts point towards the service sector delivering another month of contraction in January, highlighting the persistent fragility of the sector.

As the service sector remains the major contributor to the UK gross domestic product, accounting for more than two thirds of economic activity, any weakness here could weigh heavily on the Pound.

If the PMI drops from 49.4 to 45 as forecast this could see the Pound trending sharply lower across the board once again.

On the other hand, signs of continued resilience from the manufacturing index could help to limit the downside potential of the GBP/ZAR exchange rate ahead of the weekend.

South African Rand Weakness Forecast on Softer Business Confidence Index

As long as the general sense of market risk appetite remains elevated this may keep the South African Rand from shedding any significant ground.

Any improvement in demand for higher-yielding assets and confidence in the prospect of a global economic recovery could give ZAR exchange rates a temporary boost.

Looking ahead to next week, the mood towards the Rand could sour further with the release of December’s SACCI business confidence index.

Unless business sentiment shows signs of holding up in the face of the ongoing pandemic crisis this may give investors fresh incentive to sell out of the South African Rand.
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