South African Rand Boosted at the End of 2017, What Next for the GBP/ZAR Exchange Rate?

GBP/ZAR Volatility Prompted by Thin Trade as 2017 Comes to a Close

The Pound South African Rand (GBP/ZAR) exchange rate was met by volatility last week as thinned trade over the Christmas period exaggerated movement.

Sterling was able to rally in the second half of the week however with the publication of the latest BBA mortgage figures, which revealed that mortgage lending had risen 9% year-on-year in November.

Meanwhile, movement in the South African Rand last week was largely driven by commodity prices, although the currency did find some support from an unexpected uptick in the nation’s trade surplus in November.

South African Rand (ZAR) Bolstered by Ramaphosa Optimism and Weakened US Dollar (USD)

The South African Rand found its feet towards the end of last year as the currency was strengthened by political optimism.

Investors appear upbeat about 2018 after Cyril Ramaphosa was elected to replace President Jacob Zuma as head of the African National Congress (ANC) last month.

However, there are some concerns that the election of Ramaphosa could lead to ‘policy paralysis’ in the country. While he is now in control of the party, Zuma still controls the government, possibly leading to a clash between the two power bases.

But ZAR exchange rates have also been deriving support from the weakness of the US Dollar (USD) at the start of 2018, with the softness of USD and speculation about future Fed rate hikes causing investors to flock to emerging-market currencies such as the Rand.

The dip in USD has also prompted an uptick in precious metals, helping gold climb to its highest levels since September and further increasing the appeal of the Rand.

Pound Sterling (GBP) Exchange Rates Pressured by Dip in Construction PMI

At the same time, the Pound is on the retreat this morning at the UK’s latest Construction PMI came in below expectations, with IHS Markit reporting that the index slumped from 53.1 to 52.2 in December.

This was a disappointing end to 2017 for Britain’s builders, with the decline largely being attributed to the continued fall in commercial construction activity as firms shy away from making large financial commitments in the face of Brexit uncertainty.

Duncan Brock, Director of Customer Relationships at the Chartered Institute of Procurement & Supply, said;

‘It appears that the continued fall in commercial activity was testament to Brexit-related uncertainty on the horizon and the sector’s fear about the direction of the UK economy.’

GBP/ZAR Exchange Rate Forecast: UK Service Sector Activity to Have Risen at the end of 2017?

Looking ahead, the GBP ZAR exchange rate may be able to recoup some of its losses on Thursday, with the publication of the UK’s latest Services PMI.

Economists forecast that data will show that activity in the UK’s service sector will have sped up in December, with the index expected to climb from 53.8 to 54.1.

Tomorrow’s PMI is also likely to have a much more noticeable impact on Sterling sentiment than the construction figures, given that the service sector accounts for over 70% of the UK’s economic growth.

The South African Rand, meanwhile, may slide on Thursday as the nation’s composite PMI release is forecast to show that economic activity in South Africa continued to contract at the end of 2017.

Hannah Wilson

Contact Hannah Wilson