The Pound South African Rand exchange rate slumped to a three-week low of 16.4267 last week after a run of poor UK data and disconcerting election polls.
UK Economic Data and Election Opinion Polls Cause Pound Slump
Last Thursday saw a second approximation of the UK’s first-quarter GDP released, with growth unexpectedly being revised down from 0.3% to 0.2%.
Considering the first estimate of 0.3% was already ten basis points below forecast, this didn’t make for pleasant reading.
Even more concerning, when measured on a per-person basis, GDP has actually stagnated.
Sterling’s decline continued on Friday after a new poll suggested Labour were just five points behind the Conservatives, which shook beliefs that the election would smooth out the Brexit process by giving Theresa May a stronger majority in Parliament.
Rand Back on the Ascent after Political Scandals Surround President Zuma
The Rand lost some of last week’s gains at the start of this week thanks to fresh political scandals embroiling President Jacob Zuma over the weekend.
A series of leaked emails revealed that members of the Gupta family hold significant influence over Zuma’s administration, with a Sunday Times investigation showing that cabinet ministers enjoyed paid-for luxury hotel stays as incentives to award companies run by the Guptas with lucrative contracts for state work.
Additionally, Jacob Zuma managed to survive a second motion of no-confidence in his Presidency from his own party.
While political turmoil may have been rife, analysts believe that the fact the next election takes place in 2019 is likely to deter the ruling ANC party from implementing any policies that would harm the economy.
ZAR Unable to Capitalise on YouGov Poll Predicting Hung UK Parliament
Today, the GBP ZAR exchange rate is sinking below opening levels, although it still remains significantly above Friday’s closing low.
Political headwinds are causing the Pound to weaken elsewhere, after a new YouGov poll predicted that next week’s general election would result in a hung parliament.
Although the overall predictions include a wide margin of error, markets have nonetheless reacted negatively to the projections; particularly given that political commentators were originally foretelling a landslide victory for the Conservative Party.
Meanwhile, the South African Rand has yet to capitalise on the Pound’s weakness as markets are awaiting the afternoon’s trade data.
GBP ZAR Exchange Rate Forecast; Will SA Trade Data Undermine Rand Strength?
The UK’s economic data has all been released for today. South African trade data is expected to show the trade surplus more-than-halved from ZAR 11.4 billion to ZAR 5.5 billion.
Tomorrow’s South African data includes the ABSA manufacturing PMI, first-quarter unemployment rate and total new vehicle sales.
Considering the number of people out of work is expected to rise from 5.78 million to 6.1 million, the GBP ZAR exchange rate may be able to recoup some of its losses.
This is assuming that tomorrow’s Markit UK manufacturing PMI prints positively, as this will have markets expecting to see favourable results from the construction and services indices over the coming days.
A poor manufacturing index could raise fears that the rest of the economy will also have experienced a slowdown in May.