The Pound Sterling to South African Rand (GBP/ZAR) exchange rate has been trending between lows of 22.9476 and highs of 25.3310 during the past week.
The Rand has experienced a poor start to the year, dropping to record lows against the US Dollar (USD) while steadily losing ground against Pound Sterling as concerns over one of South Africa’s largest trading partners threatens the country’s economy.
Emerging panic in China has dominated the currency market during the first days of trading in 2016, with news of a continuing contraction in the manufacturing sector coupled with a slowdown in the services sector causing Chinese traders to sell off domestic shares at an alarming pace. The resulting panic, which is only just beginning to wane during the second week of January, wiped around £1.4 trillion from the value of global equities.
The news was particularly damaging for South Africa as it exports large amounts of raw minerals such as coal and precious metals, as well as steel, to China. As a chiefly export economy, South Africa has already been hit hard by weakening conditions in China, with the current problems further straining an economy which has relied on the Asian nation’s rapid growth to fuel its own prosperity.
The Rand steadily lost ground against the Pound throughout the week, its depreciation held in check by weakening factors surrounding GBP. The Standard Bank PMI for South Africa, released on the 6
th
, showed that private sector output had dropped dramatically during December, with the overall index falling further than forecast from 49.6 to 49.1. New business fell for the sixth time in seven months, input costs rose and more companies reduced the size of their staff.
Rand losses were softened by poor data from the UK, which showed that the services sector hadn’t performed quite as-well-as expected during December. With the previous poor result from the manufacturing sector, a worse-than-anticipated performance from the UK’s main driver of economic growth caused concern, although the GBP/ZAR exchange rate still closed the day higher at 23.2081.
Data from both South Africa and the UK has disappointed today. South African Manufacturing Production continued to remain in negative territory, improving from -2.1% to -1.0% but remaining far from the -0.2% level forecast. UK Manufacturing Production also declined, but unlike South African manufacturing the deceleration increased, dropping from -0.2% past the forecast level of -0.8% to -1.2%. Industrial Production continued to grow, although the pace of that growth unexpectedly slowed from 1.7% to 0.9%.
The Bank of England meets to decide interest rates on Thursday. While it is widely predicted that there will be no changes made, the attitudes of policymakers will be under close scrutiny for any signs of growing or falling positivity towards the economy. Also on Thursday is data governing mining production and gold production in South Africa, which will demonstrate the effect of weakening Chinese demand upon South African producers.
The GBP/ZAR exchange rate is currently trading between 23.9440 and 24.6260.