As we hit mid-week, the Pound to South African Rand exchange rate continues to trend near the week’s opening levels of 17.33. The pair has trended just below this level for most of the week as Brexit concerns and a stronger Rand have limited Pound strength.
Pound (GBP) Recovers from Lows on Strong Manufacturing Data
Demand for the Pound has generally improved since Tuesday’s UK manufacturing data was published, but Sterling has been unable to push GBP/ZAR above the week’s opening levels due to fresh concerns about the Brexit process.
Reports have emerged this week that UK Prime Minister Theresa May and European Commission Leader Jean-Claude Juncker may not have gotten along as famously as hoped in a meeting between the two last week.
Rumours that Juncker had left a meeting with May much more sceptical about the Brexit process were enough to spook markets.
Concerns continued on Wednesday after May took a tough stance, claiming on the election campaign trail that Juncker would find her to be a ‘bloody difficult woman’ in Brexit negotiations.
Britain’s outperforming manufacturing PMI was followed by its construction counterpart on Wednesday. As it also beat expectations it helped GBP/ZAR firm.
South African Rand (ZAR) Benefits from Political Jitters
Despite perceived political and economic instability in South Africa in recent weeks, the undervalued South African Rand has benefitted from political jitters this week.
As well as taking advantage of the headwinds facing other currencies (such as Brexit concerns in Pound trade), the Rand has gained in response to protests in South Africa against the controversial President, Jacob Zuma.
Markets continue to hope that Zuma’s time in power is coming to an end, with some analysts suggesting he could step down in 2018.
Zuma has become even more unpopular among investors and citizens after he sacked South Africa’s popular finance minister Pravin Gordhan, causing two credit rating agencies to downgrade the SA credit rating to ‘junk’.
Additionally, the Rand has benefitted from a drop in Federal Reserve interest rate hike bets this week, with less traders expecting a hawkish tone from the US central bank.
GBP/ZAR Forecast: UK Services Data in Focus
Thursday will see the publication of a run of UK data, including UK mortgage approvals and consumer credit figures as well as April’s services PMI.
As the service sector accounts for 70% of the UK’s economy, the results of the index could have a significant impact on GBP trading this week.
Better-than-expected services data could cause GBP/ZAR to rise, but a poor outcome may send the Pound trending lower.
The South African Rand, on the other hand, is more likely to react to Wednesday’s Federal Reserve news.
Emerging market currencies like the Rand will benefit if the Fed hints that interest rates may not be adjusted in June.