Foreign Currency Market Update – GBP / ZAR Update
The Pound Sterling South African Rand exchange rate slumped to its lowest level since the first week of February during the middle part of last week’s trading session.
The downshift for the pair was driven by a combination of Sterling weakness and a generalised movement into risk-laden assets which favoured the South African unit. The Pound struggled across the board for much of the week as investors priced-in softer than anticipated data from the British construction sector, while a disappointing set of domestic Industrial Production numbers added to the impression that the UK economic recovery is stalling. Britain’s Gross Domestic Product expanded by a respectable 0.6% during the final three months of last year but, in light of the recent sector-by-sector numbers, many analysts feel that the Q1 2015 Gross Domestic Product numbers, when released, may show at a considerably lower level.
Yesterday’s headline UK inflation figures, which showed that the pace of British price rises had remained at a year-on-year zero per cent last month, added to the prevailing impression amongst investors that the Bank of England will not be ready to increase its key interest rate until well into 2016. The fall-out could weigh down Sterling for months to come and if the UK tender does indeed record renewed losses against the Rand, then GBP ZAR may track Southwards towards its January low of 17.0356.
In the near-term, GBP ZAR has rejected last week’s 2-month low of 17.4494 during trading either side of the midweek market shutdown. Wednesday’s US Federal Reserve minutes held back the high-yielding risk-fuelled currencies including the Rand en masse. Most market participants expected the notes of the March Fed policy meeting to confirm that the next US interest rate remained a long way off. The news that, ‘several participants judged that the economic data and outlook were likely to warrant beginning normalisation at the June meeting,’ therefore came as a surprise and the prospect of a demand-dampening American rate hike held back the Rand for the remainder of the week.
Meanwhile, the weekend market shutdown also hurt the Rand, with the publication of official data pointing to an annualised reduction of over 12.0% in the level of imports in to China. The news of one of a sharp reduction in demand for South African raw materials from one of its key export markets may hold back the Rand into the medium term. If this proves to be the case, then expect GBP ZAR to trend upwards once more, with the pair’s most recent peak of 18.0951 providing an initial target.
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