The Pound struggled to hold its ground against most majors during Tuesday’s session, but was able to advance against the South African Rand as a slew of news led to ZAR plummeting across the board. Due to Sterling’s weakness, the pair was only able to advance to levels just above 19.00.
Pound (GBP) Weakens on Economic Damage of Brexit
Sterling has been weak since last Friday’s shocking release of the first post-Brexit PMI report from Markit. While the figures were preliminary, they painted a dire picture of the health of the UK economy and have led analysts to predict a -0.4% contraction in the British economy in Q3.
This trend continued on Monday, when the most recent business climate report from CBI revealed that manufacturing business confidence had plummeted to levels not seen since 2009.
Ultimately, data released since last Friday has indicated that Britain’s vote to Brexit has damaged the UK economy more than bulls, and even some bears, had expected.
This has led even relatively-hawkish Bank of England (BoE) policymaker Martin Weale to state that the figures were far worse than he had expected. These factors all weighed the Pound down on Tuesday, but Sterling was still able to advance on a particularly weak Rand.
Rand (ZAR) Throttled by Latest SARB News
Last Thursday saw the release of the South African Reserve Bank’s (SARB) most recent Monetary Policy Committee (MPC) statement. The press statement made reference to the downside risks of the Brexit and indicated that the growth outlook for South Africa was currently slim.
Perhaps most notably, Governor Lesetja Kganyago forecast that the South African economy would grow by 0% in 2016 – meaning no growth at all.
Despite mentioning global downside risks, analysts predict that the nation’s economic issues are largely domestic. The unemployment rate is forecast to rise above its current level of 26.7%, and South African financial experts are beginning to question the effectiveness of austerity.
South Africa’s finance minister, Pravin Gordhan, stated on Tuesday that he believed it was ‘very clear’ that austerity was ‘no longer the answer’.
Amid all the negative news and uncertainty surrounding South Africa’s economy, as well as the indication that many fundamental monetary policies may have to change, the Rand plummeted across the board.
GBP/ZAR Forecast: British Growth Figures Ahead
Will the Rand be able to recover? With other key South African economic figures due throughout the week, it seems unlikely. First off however, is Wednesday’s preliminary Q2 UK growth report.
The British economy is estimated to have grown by around 0.5% in Q2 2016, following on from 0.4% growth in Q1. However, some analysts believe that Brexit jitters leading up to June’s EU Referendum could weigh heavily on Q2 GDP despite a solid April.
A lower-than-expected result is likely to cause investors to worry that Britain’s economy was even less prepared for the Brexit vote than previously believed and would cause Q3 contraction estimates to worsen.
Thursday sees the publication of South Africa’s Q2 unemployment rate. While the official forecast is to improve from 26.7% to 25.6%, many analysts currently believe the figure will instead worsen.
Lastly, June’s update to the South African trade balance will be released on Friday. The balance is expected to plummet from ZAR18.7bn to around ZAR8bn. If it falls below this, it would add considerably to the weight already piled on the Rand.