South African Employment Figures Disappoint, GBP ZAR Spikes

The Pound South African Rand (GBP ZAR) exchange rate struck a new one-year high last week on the back of South Africa’s latest budget report.

The Rand experienced it sharpest drop since the firing of Finance minister Pravin Gordhan last Wednesday as the government announced it was slashing growth forecasts and that its fiscal deficit was likely to be higher than expected over the coming years.

The surge in GBP ZAR last week was also supported by an unexpected uptick in the UK’s third quarter GDP estimate, which suggested that the UK economy grew 0.4% over the summer and beat expectations of 0.3% growth.

This had the knock-on effect of also strengthening the odds that the Bank of England (BoE) will vote to raise interest rates later this week.

South African Rand Slumps as Unemployment Remains as 13-Year High

While the South African Rand recouped some of its losses by the end of last week, the currency looks set for another rough day of trading today as the currency comes under considerable pressure on the back of some disappointing employment data.

Figures released today show that the jobless rate in South Africa remained at a stubbornly high 27.7% in the third quarter of the year – the thirteen-year high struck at the start of 2017.

Data released by Statistics South Africa said this amounts to around 6.2 million people out of work over the three months to September.

GBP Strengthening Ahead of BoE Policy Meeting

Helping to aid the Pound’s advance at the start of this week’s session is anticipation that the BoE’s Monetary Policy Committee (MPC) will vote to raise interest rates when they gather for November’s rate decision on Thursday.

The Bank is widely expected to vote later this week to reserve the rate cut made by the BoE last August in the wake of the Brexit referendum.

However, there are still some concerns that the Bank may vote to leave monetary policy untouched, something that could seriously undermine the Pound’s recent strength.

Neil Jones, head of hedge fund FX sales at Mizuho in London said;

‘If there is no hike – which is completely possible - the pound will be sold off hard, it would plummet.’

Even if the BoE votes as expected to raise rates this week, speculation will then mount on whether the hike will be a one off or the start of a new cycle of monetary tightening, with Sterling’s gains likely to be tempered if the Bank strikes a more dovish tone towards future hikes, with Jones adding;

‘But the most likely scenario is a dovish hike … and it should have limited upside, especially if it’s a one-and-done type scenario.’

GBP ZAR Forecast: Manufacturing Data Could Further Weaken Rand

While the BoE rate decision will undoubtedly be the main focus for investors this week, the Pound is also likely to be impacted by the release of the UK’s latest manufacturing PMI figures on Wednesday.

While most economists forecast that UK manufacturing activity is likely to have slowed slightly in October, Sterling sentiment could still be bolstered if the reading shows that growth remained robust.

Meanwhile, South Africa will publish its own manufacturing PMI tomorrow which will likely drag on the Rand as economists forecast that activity in the country’s factory sector will have continued declining in October.

Data Item Expectation

2nd November 09:30 UK Construction PMI (OCT) 48.1
3rd November 09:30 UK Services PMI (OCT) 53.3
1st November 08:15 SA Manufacturing PMI (OCT) 45.9
1st November 09:30 UK Manufacturing PMI (OCT) 55.8
2nd November 12:00 UK BoE Rate Decision (Nov) 0.50%
Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon


Related