Pound to South African Rand (GBP/ZAR) Exchange Rate Losses Persist after OECD’s Brexit Warning
Update: Pound Sterling (GBP) has continued to trade poorly against the South African Rand (ZAR) today, following cautious economic forecasts from the OECD.
The organisation’s latest report explicitly identifies Brexit as a limiting factor on UK growth, with experts saying:
‘[UK economic growth has been] held back by Brexit-induced economic uncertainty. [There are] high uncertainties about the outcome of Brexit negotiations.’
UK Productivity Problems Trigger Pound to South African Rand (GBP/ZAR) Exchange Rate Losses Today
The Pound (GBP) has fallen by -0.7% against the South African Rand (ZAR) today, owing to low confidence in the UK economy and US Dollar movement boosting Rand demand.
In the UK’s case, there are continued concerns about whether growth in 2018 will accelerate or remain stuck in low gear.
Highlighting the influence of Brexit on this decline in confidence, former Bank of England (BoE) official David Blanchflower said:
‘Firms are not going to invest when they have no idea what form Brexit will take and not least what will happen in relation to the Irish border.
‘We should expect this decline to continue, which will be bad for British productivity.
‘Recall that the French still produce in four days what the UK produces in five and this is not going to change any time soon. The UK continues to be the sick man of Europe.’
Cautious US Economic Forecasts Enable South African Rand to Pound (ZAR/GBP) Exchange Rate Advance
Today’s sizable South African Rand to Pound (ZAR/GBP) exchange rate rise is down to the US Dollar weakening, rather than any particular Rand strength.
The US Dollar has dropped on forecasts of slower GDP growth being reported when figures are released this afternoon.
If the GDP growth reading rises then the US Dollar might recover today, which risks the Rand (ZAR) making later losses against the Pound (GBP).
Domestically, there hasn’t been much support for the Rand, with plans to nationalise the South African Reserve Bank (SARB) still going ahead.
Actual nationalisation is still a long way off, but all signs point to the ruling African National Congress (ANC) pressing ahead with the process.
In the ANC’s own words:
‘It is a historical anomaly that there are private shareholders of the [SARB]. [The] Conference resolves that the [SARB] should be 100% owned by the state.’
Such a change of leadership could significantly devalue the Rand as it would mean a sea-change in how monetary policy is implemented in South Africa.
Pound to Rand (GBP/ZAR) Exchange Rate Volatility Forecast on Manufacturing PMIs
For the rest of the week, Pound Sterling to South African Rand (GBP/ZAR) exchange rate movement may be caused by a measure of UK consumer confidence on Thursday and a PMI announcement on Friday.
Thursday’s GfK consumer confidence reading for May is tipped to show a minor improvement, which may be enough to cause a GBP/ZAR exchange rate recovery.
Further ahead, however, Friday’s manufacturing PMI reading could weaken the Pound if it shows a forecast-matching slowdown in activity during May.
South Africa’s main economic announcements this week will be a trade balance reading on Thursday and, like the UK, a manufacturing PMI measurement on Friday.
Both data releases could weaken the Rand (ZAR) and cause a decline against the Pound (GBP).
The trade balance, which measures goods exported and imported, is tipped to show the surplus shrank in April.
Additionally, a forecast-matching manufacturing PMI slowdown on Friday will leave the reading at 50.1 points, just a hair above the sub-50 point contraction range.