Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Slides on Signs of Weakening UK Wage Growth

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Falters on Mixed UK Wage Growth Data

As UK wage growth data proved mixed in April this left the Pound Sterling to South African Rand (GBP/ZAR) exchange rate on a weak footing.

Although weekly earnings excluding bonuses bettered forecasts to accelerate 3.4% on the year this was overshadowed by a slight loss of momentum in the accompanying total pay growth data.

All in all, domestic wage growth looks set to remain under pressure from rising inflation in the months ahead, limiting the case for a Bank of England (BoE) interest rate hike.

A steady performance from the latest UK labour market data also failed to offer Pound Sterling (GBP) any particular rallying point this morning, even though the unemployment rate remained at a 44-year low.

Global Trade Speculation Continues to Drive South African Rand (ZAR) Exchange Rates

Hopes of a potential easing in global trade tensions helped the South African Rand (ZAR) recover some ground at the start of the week.

With markets now pricing in a 2019 Federal Reserve interest rate hike as a near certainty the relative weakness of the US Dollar (USD) has also encouraged ZAR exchange rates to pick up.

Demand for the Rand could stall this afternoon, however, if April’s South African manufacturing production data fails to show an improvement.

As concerns over the outlook of the South African economy remain any fresh evidence of easing growth could weigh heavily on ZAR exchange rates today.

If manufacturing output picks up, though, this could see the GBP/ZAR exchange rate shedding further ground.

South African Rand (ZAR) Looks Vulnerable to Fresh Mining Output Contraction

The appeal of the South African Rand could diminish sharply on Thursday if April’s mining and gold production figures fail to impress, meanwhile.

Another contraction in output on the year would further undermine confidence in the health of the South African economy, especially in the current climate of market anxiety.

As long as the economy shows signs of losing momentum the likelihood of further South African Reserve Bank (SARB) dovishness looks set to increase, to the detriment of the Rand.

Any deterioration in the second quarter business confidence index may also weigh heavily on ZAR exchange rates this week, adding to the sense of worry over the domestic outlook.

If the US-China trade dispute shows fresh signs of intensification this could equally weigh on the South African Rand in the days ahead.

House Price Weakness to Add to Pound Sterling (GBP) Pressure

Another monthly contraction in the RICS house price balance may encourage greater GBP exchange rate bearishness, on the other hand.

Signs of persistent weakness within the UK housing market would leave investors with less incentive to buy into the Pound, given the ongoing uncertainty surrounding Brexit.

Developments in the ongoing Conservative Party leadership contest could also put pressure on the GBP/ZAR exchange rate, especially if a hard-line Brexiteer remains the frontrunner in the race to succeed Theresa May.

Unless the risk of a no-deal Brexit appears to ease Pound Sterling could fall further out of favour in the days ahead as markets continue to weigh up the odds of a weaker second quarter performance.

Louisa Heath

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