The Pound to South African Rand exchange rate has been performing strongly this week despite poor UK data. This saw GBP/ZAR reach a high of 17.31 on Tuesday, the pair’s best levels since December 2016.
Pound (GBP) Benefits from Rand (ZAR) Weakness
The Pound has been able to advance against the South African Rand so far this week largely due to broad-based Rand declines.
Demand for the Pound has been poor overall and the British currency has lost out against many other major currency rivals due to disappointing UK ecostats.
Monday saw the publication of Britain’s March manufacturing PMI from Markit. The figure was expected to improve from 54.6 to 55.1 but instead fell from a revised 54.5 to 54.2.
UK construction also came in worse-than-expected, slowing from 52.5 to 52.2.
The results indicated to some analysts and investors that Britain’s economy was beginning to slow due to rising inflation and lower wage growth. This left GBP investors jittery ahead of Wednesday’s UK services PMI.
ZAR Plummets as SA Credit Rating Downgraded to ‘Junk’
Monday night saw the economic and political uncertainty in South Africa worsen, as Standard & Poor’s downgraded the nation’s credit rating to ‘Junk’ status, from BBB- to BB+ with a negative outlook.
With the outlook still negative, there is always the chance the status could be downgraded again unless the situation improves.
The latest crisis in South Africa’s economy was the result of SA President Jacob Zuma sacking the nation’s Finance Minister, Pravin Gordhan, as well as other members of his cabinet.
Calls for Zuma to step down have intensified since the sacking last week. On Tuesday morning Zuma’s predecessor, Kgalema Motlanth, even said Zuma should step down.
The high uncertainty in South Africa has weighed on risk-sentiment, making the Rand even less appealing.
GBP/ZAR Forecast: Services PMI and Zuma’s Actions in Focus
The Pound to South African Rand currency pair is likely to be extremely volatile for the coming week or so due to the rising uncertainty in South Africa as political rows deepen.
Despite calls for South African President Zuma to step down, rumours suggest he will step down in 2018 at the earliest. This could leave the Rand under long-term pressure.
South African data is unlikely to influence the Rand much this week as markets will be focused on political developments and rising uncertainty.
The Pound’s movement will be comparatively easier to read. Wednesday will see the publication of Britain’s March services PMI from Markit, as well as Markit’s overall composite PMI for the month.
If services fail to meet expectations or fall, the Pound could remain under pressure until the end of the week. This would also limit GBP/ZAR gains.
On the other hand, a strong services PMI could lead to a surge in GBP/ZAR thanks to improved Pound sentiment.