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Pound South African Rand (GBP/ZAR) Exchange Rate Rises as Outlook for UK Economy Continues to Improve

May 4, 2021 - Written by John Cameron

GBP/ZAR Exchange Rate as UK Factory Growth Boosts Sterling

The Pound South African Rand (GBP/ZAR) exchange rate rose by 0.3% today as the outlook for the UK economy continues to improve. The pairing is currently trading around R20.06.

Sterling rose against the South African Rand today following the publication of the latest UK manufacturing PMI for April. The figure beat forecasts and rose to 60.9.

Rob Dobson, director of IHS Markit who compile the survey, commented:

‘Further loosening of COVID-19 restrictions at home and abroad led to another marked growth spurt at UK factories. The headline PMI rose to a near 27-year high, as output and new orders expanded at increased rates. The outlook for the sector is also increasingly positive, with two-thirds of manufacturers expecting output to be higher in one year’s time. Export growth remains relatively subdued, however, as small manufacturers struggle to export.’

As a result, the GBP/ZAR exchange rate has benefited from growing optimism in the UK economy, which is expected to improve in the coming months.

The UK’s Covid-19 infections continue to remain relatively low, with 1 death being recorded on Bank Holiday Monday.

Neil Ferguson, an epidemiologist at Imperial College London and key adviser to the Government, was upbeat about the UK’s Covid-19 situation, which is showing signs of improvement.
Mr Ferguson commented:

‘We expect them to continue to go down, maybe tick up a little bit next month but only within manageable levels, and so that puts us in a very good position to be keeping to the Government road map – relaxing some restrictions in a couple of weeks’ time and then many more in June.’

South African Rand (ZAR) Exchange Rate Falls as Third-Wave Fears Haunt South African Markets

The South African Rand (ZAR) suffered today as investors are fearing a third-wave of Covid-19 hitting South Africa.

As a result, South African markets have become more pessimistic about the outlook for the nation’s economy.

Added to this, souring risk sentiment because of growing uncertainty over India’s Covid-19 outbreak has also weakened demand for the risk-sensitive ZAR.

Analysts at Reuters have also highlighted strong US economy growth as being a factor weakening the ZAR/GBP exchange rate.

Reuters explains:

‘Strong U.S. economic growth in the first quarter, with gross domestic product increasing 6.4%, took some of the steam out of the rand's rally, with traders warning that South Africa's own economic struggles may weigh on its strength.’

Pound South African Rand Exchange Rate Forecast: Could a Hawkish BoE Boost Sterling?

Pound (GBP) traders will be looking ahead to Thursday’s interest rate decision from the Bank of England (BoE).

The BoE is expected to hold its interest rate at 0.1%, but any hawkish comments about the outlook for the UK economy would be GBP-positive.

Thursday will also see the release of the final UK services PMI for April. If this shows a recovering British economy, then the Pound South African exchange rate would head higher.

The South African Rand (ZAR) will continue to be largely driven by risk sentiment this week. If the global Covid-19 situation shows signs of stabilising, then demand for the risk-sensitive ZAR could increase.

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