GBP/ZAR Exchange Rate Rockets on Hopes Upbeat Services PMI Strengthen Chances of August Rate Hike
UPDATE: The Pound South African Rand (GBP/ZAR) exchange rate shot up almost 0.5% on Wednesday, lifted by the UK’s June PMI data as the domestic service sector expanded at its fastest pace since October.
Sterling sentiment went higher following the release, with analyst speculating the surge in growth at the end of the second quarter will bolster the chances of the Bank of England (BoE) targeting a rate hike in August.
Today’s stronger-than-expected services PMI makes the all-sector output balance consistent with GDP growth of 0.4% q/q in Q2. That is in line with the MPC’s forecast, leaving the committee on course to raise Bank Rate in August. pic.twitter.com/2sFLzeuMVd
— Capital Economics (@CapEconUK) July 4, 2018
Meanwhile the Rand was knocked lower on Wednesday, with demand for emerging currencies damaged by rising global trade tensions.
GBP/ZAR Exchange Rate Fluctuates Wildly as Trade Tensions Continue to Build
The Pound South African Rand (GBP/ZAR) exchange rate went on a rollercoaster ride throughout last week’s session as global uncertainty prompted large swings in both currencies.
For the Rand it was another rise in trade tensions which proved the most impactful, with emerging currencies facing a heavy sell-off as markets became increasingly wary of the possibility of a US led trade war.
Meanwhile concerns over a lack of progress in Brexit negotiations hampered Sterling throughout last week, preventing the Pound from ever truly managing to exploit the weakness in the Rand.
However GBP/ZAR ultimately closed the week higher as Sterling was bolstered by the release of the UK’s latest GDP figures, with first quarter growth being revised up from 0.1% to 0.2%, strengthening expectations that the Bank of England (BoE) is on track for a rate hike in August.
South African Rand (ZAR) Exchange Rate Rallies Following Drop in US Dollar (USD)
The South African Rand (ZAR) is punching higher this morning, following a pullback in the US Dollar (USD).
Emerging currencies such as the Rand found some much needed breathing space this morning, with USD falling back and risk appetite picking up as investors took advantage of a slight easing in trade tensions.
The dip in the US Dollar may prove to be temporary however, with the ZAR exchange rate likely to retreat once again if an upcoming slew of high-impact US data bolsters USD sentiment later in the week.
Losses in Pound Sterling (GBP) Exchange Rate Clipped by Upbeat Construction PMI
At the same time, the Pound Sterling (GBP) exchange rate losses this morning have been mitigated slightly by the release of the UK’s latest construction PMI.
In a report published by IHS Markit, UK construction activity was reported to have risen as its faster pace in seven-months in June, with the index unexpectedly jumping from 52.5 to 53.1, beating forecasts of a modest dip to 52.4.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said:
‘With the fastest rise in new orders since May 2017, it appears the brakes are off for the construction sector. Despite being hampered by economic uncertainty, firms reported an improved pipeline of work as clients committed to projects and hesitancy was swept away.’
The sector has now enjoyed three months of consecutive gains, following a sharp contraction in March, which should help to bolster optimism that the second quarter will see a marked uptick in UK GDP.
GBP/ZAR Exchange Rate Forecast: Will UK Services PMI Propel Sterling Higher?
Looking ahead, movement in the GBP/ZAR exchange rate on Wednesday is likely to be driven by the release of the UK’s final PMI figures from June.
We could see the Pound (GBP) shoot higher if the index reveals that activity in the UK’s all important service sector ticked higher last month.
Meanwhile another possible upswing in trade uncertainty may continue to pressure emerging currencies such as the Rand (ZAR) this week, with a lull in notable domestic data offering little defence for ZAR against a further drop in market risk appetite.