The Pound to South African Rand exchange rate edged lower as Britain’s latest ecostats disappointed and South Africa’s economy performed better-than-expected in Q2.
Pound (GBP) Outlook Dampened by Services Report
Britain’s latest ecostats gave investors little reason to buy the Pound as Markit’s August PMIs were largely disappointing.
While the manufacturing PMI beat expectations, both construction and services stats fell short and made markets concerned about Britain’s economy.
UK services data was forecast to have slipped slightly from 53.8 to 53.5, but instead dropped to 53.2. This was the worst services print in around 11 months and Markit analysts noted that Brexit uncertainty was largely to blame.
The overall composite PMI for Britain was forecast to improve to 54 in August, but slipped to 53.8.
Economists have expressed concern for Britain’s economic outlook since the results came in, with some suggesting that the risk of a UK recession is rising.
With key UK economic sectors slowing, Brexit concerns persisting and the Bank of England (BoE) likely to keep UK monetary policy at its loosest levels on record, the Pound outlook is gloomy.
South African Rand (ZAR) Supported by SA Growth Data
Higher-risk emerging market currencies like the South African Rand have been under pressure this week as markets react to news about North Korea’s latest nuclear tests.
However, the Rand has kept GBP/ZAR low despite this, partially due to optimism about South Africa’s latest Gross Domestic Product (GDP) results.
South Africa’s Q2 growth results beat expectations in both major prints. Quarterly growth improved to 2.5%, beating 2.1% forecasts. The previous figure was also revised higher, from -0.7% to -0.6%.
The yearly growth rate improved too, from 1% to 1.1%, well above the forecast slip to 0.4%. This made it the highest yearly growth rate in two years.
News that South Africa had exited recession in Q2 boosted optimism, although concerns remain about South Africa’s growth outlook.
GBP/ZAR Forecast: Quieter Trade Ahead
The Pound to South African Rand exchange rate is unlikely to see any major reaction from economic data in the coming days, with markets more likely to focus on risk-sentiment instead.
Any developments in North Korean geopolitical tensions could impact the South African Rand. If tensions cool and riskier currencies become more appealing again, GBP/ZAR could weaken.
Sterling, meanwhile, is likely to be influenced by Brexit developments and some notable UK ecostats.
July’s UK trade deficit update, as well as industrial production, manufacturing production and construction output from July could alter the Pound outlook.
However, Sterling is unlikely to see a considerable boost in demand unless inflation rises and gives Bank of England (BoE) interest rate hike expectations a boost. If Friday’s Q3 consumer inflation expectations or next Tuesday’s August inflation rate beat expectations, GBP/ZAR is likely to advance.