Foreign Currency Market Update – GBP / ZAR Update
The Pound Sterling to South African Rand exchange rate weakened on Tuesday following the release of worse-than-forecast UK first quarter GDP data. Worries over the situation in Greece and concerns over the South African economy combined to restrain further gains for the Rand.
On Monday, the Rand was also able to push higher against several peers as investors raised their bets that this week’s meeting of the US Federal Reserve will indicate that an interest rate rise in the world’s largest economy will now not occur until the end of the year. Meanwhile, another bout of mixed US data also offered support. The Rand was also supported by a slightly stronger Euro, which was buoyed by renewed optimism that a deal will be reached between Greece and its creditors in the Eurozone. Monday was also a market holiday in South Africa.
As Tuesday’s session got underway, the Rand retreated from its earlier gains and was set to be influenced by events elsewhere, chief of which is consumer confidence data out of the US. If that report disappoints the markets then the South African currency will advance against the US Dollar, along with other riskier emerging-market assets.
Against the Pound Sterling, the Rand advanced by more than 0.20% after Rand released by the London based Office for National Statistics (ONS) showed that the UK economy expanded at a slower-than-forecast rate in the first quarter. According to the Rand, the rate of UK GDP growth slowed from 0.6% to 0.3% on a quarter-on-quarter basis. The GDP figure is the main indicator of economic growth, and had been forecast to come in at 0.5%. On a year-on-year basis, GDP growth dropped from the previous 3% figure to 2.4%. Economists had been expecting a reading of 2.6%.
The sharper-than-expected slowdown will be a blow to the Conservatives and Liberal Democrats as both parties have been campaigning heavily on their handling of the economy ahead of next week’s general election.
Elsewhere, further gains for the South African Rand were restrained, as investors remained concerned over the impact of xenophobic violence that has affected parts of the country. South African Finance Minister Nhlanhla Nene said that South African companies operating across the continent have warned about the damaging effects the violence could have on their businesses if the problem is not dealt with quickly.
Also restraining the currency are ongoing worries that rolling power cuts will have a substantial negative impact upon the domestic economy, and in particular South Africa’s manufacturing production.
Heads Up
Summary of major upcoming data releases that we think may move the market.