Foreign Currency Market Update – GBP / ZAR Update
The past week has seen the Pound Sterling to South African Rand (GBP/ZAR) exchange rate rise overall, although the path to a weekly high of 21.6721 was beset by troubles on the UK side of the equation.
The biggest boost for the Pound against the Rand came on Wednesday when Chancellor George Osborne gave the Autumn Statement in Parliament. Although the recent Paris attacks had virtually guaranteed a bigger defence spending budget, economists were uncertain as to where the cuts to pay for this would be coming from. As it turned out, the hardest hit departments were those of energy, the environment and transport, but a highly optimistic forecast from the Office of Budget Responsibility estimated a £27bn improvement in UK public finances compared to the previous July Budget. Adding to investor optimism, the deeply unpopular cuts to next year’s tax credits were scrapped. The Pound soared on the news, but this wasn’t to last in the long run.
The Institute for Fiscal Studies (IFS) essentially picked the Autumn Statement apart, identifying that Osborne’s grand plan to lower the deficit would only work if the predicted OBR GDP growth came true.
The South African Rand was mainly affected by the October Producer Price Index last week, which rose above forecasts on both the month and year. The only other domestic data of note was the Q4 Business Confidence result, which disappointed Rand investors by falling from 38 points to 36 instead of merely reaching 36.64. The Rand was also detrimentally affected by the price of gold per 100 ounces and platinum, both of which hit respective lows of almost $1055 and $832.
For the rest of this week, Pound Sterling/South African Rand exchange rate movement may occur as a result of tomorrow’s South African Barclays Manufacturing PMI for November, the UK Construction PMI figure for the same month, Thursday’s Standard Bank PMI for South Africa and the UK Services and Composite PMIs that are out on the same day.
At the time of writing, forecasts were cautiously optimistic for the outcome of the Barclays PMI figure, as a rise from 48.1 to 48.42 has been predicted. It is worth noting, however, that even if met this result will still see South Africa’s manufacturing sector in a state of contraction with a below 50 figure. Less positively, the UK Construction PMI result is in line to experience a marginal drop from 58.8 to 58.5.
No forecast has currently been made for Thursday’s South African Standard Bank PMI; the last printing was at 47.5. Finally, predictions have been mixed for the result of the UK Composite and Services PMIs – a decline from 55.4 to 55 is expected for the Composite figure while estimates have been for a fractional rise from 54.9 to 55 for the Services outcome.
Heads Up
Summary of major upcoming data releases that we think may move the market.