Foreign Currency Market Update – GBP / ZAR Update
The past five days have seen the Pound Sterling to South African Rand (GBP/ZAR) exchange rate recover from a low of 19.5331 to achieve a high of 19.9610. The emerging-market Rand has also been struggling against the US Dollar, falling to multi-year lows in response to Chinese concerns, the routed commodity market and the prospect of higher borrowing costs in the world’s largest economy.
Monday’s South African manufacturing data did little to increase demand for the emerging-market Rand despite the KAGISO PMI holding at 51.4 in July rather than dropping to 50.49 as forecast. The UK’s own manufacturing PMI came in above expected levels on Monday, but market movement was limited ahead of Thursday’s Bank of England (BoE) interest rate announcement and Inflation Report.
On Wednesday South Africa published its Standard Bank PMI, with the index sliding further into contraction territory by easing from 49.2 to 48.9. The data, coupled with interest rate hike-supportive comments from a high-profile Federal Reserve official, ensured that the Rand posted an additional 0.7% decline against the Pound in spite of the UK’s Services PMI falling by more than projected. The Rand also struck a new 14-year low against the US Dollar as the South African Economic Development Minister announced that the country’s key mining sector is ‘in trouble’ due to the downturn in China and falling commodity prices.
Of course, the hotly-anticipated BoE Interest Rate report can be expected to inspire notable GBP/ZAR movement tomorrow. Should the central bank positively revise its growth or inflation projections for the UK, it would up the odds of UK borrowing costs being adjusted in 2015 and may send the Pound surging across the board. Friday’s US Non-Farm Payrolls report will be another driver of Rand volatility before the weekend. An on or above forecast result might be enough to push the Fed into raising interest rates in September of this year – an outcome which would seriously undermine demand for emerging-market currencies like the Rand – while a smaller-than-expected increase in positions might just help the South African asset recoup some of its recent losses.
Next week the South African reports to be aware of include the nation’s Manufacturing Production figures for June, due for release on Tuesday, and Thursday’s Mining Production numbers. Both manufacturing and mining output are forecast to increase following the declines recorded in May but in light of recent comments relating to the strength of South Africa’s economy, the numbers could fall short. In terms of UK data, the nation’s employment figures for June are likely to have the most notable impact on Sterling trading.
Heads Up
Summary of major upcoming data releases that we think may move the market.