Foreign Currency Market Update – GBP / ZAR Update
The Pound Sterling to South African Rand exchange rate strengthened to a session high of 18.4900 on Monday as the shock Conservative victory at last week’s general election continued to support the Pound. A surprise interest rate cut by China on Sunday weakened the South African Rand and other emerging market currencies.
China cut interest rates for the third time in six months over the weekend, as policy makers in the world’s second largest economy struggle to tackle a worse-than-expected economic slowdown. The People’s Bank of China cut the deposit and lending rates by 0.25% in an effort to try to stimulate the flagging economy. After the rate cut was announced economists raised their bets that the move would pause any gains being achieved by emerging market assets. Chinese policy makers are growing increasingly worried that the nation will fall short of its expectations of achieving 7% GDP growth for this year. A growth rate below that will mark the weakest performance for quarter of a century.
The South African Rand was also under pressure from last week’s confidence indicators, which came in below economist expectations. Economists had been anticipating consumer confidence to have risen due to stable rates, low inflation and a sharp drop in petrol prices. Instead, the consumer confidence index fell to -4 in the first quarter of the year from 0 in the final quarter of 2014.
Also weighing on the currency was a revival in the strength of the US Dollar. The ‘Greenback’ recovered from a brief bout of weakness created by the release of softer-than-expected US employment data. The report showed that US nonfarm payrolls came in below forecast, with a headline figure of 213,000 instead of 228,000. Despite that, the figure was a sharp revival from March and as such, economists saw the data as a positive. As the week progresses we can expect the South African Rand to weaken further as upcoming manufacturing production and mining production reports are both forecast to show a decline in activity. An unstable national power grid, coupled with worker unrest is expected to have reduced activity in both sectors.
The GBP/ZAR exchange rate is also likely to experience movement because of the Bank of England’s (BoE) latest interest rate decision and the publication UK employment and earnings data on Wednesday.
Heads Up
Summary of major upcoming data releases that we think may move the market.