Pound South African Rand (GBP/ZAR) Exchange Rate Bounces Back as SA Retail Sales Slide

Drop in South African Retail Sales Shores up Pound South African Rand (GBP/ZAR) Exchange Rate

The Pound Sterling to South African Rand (GBP/ZAR) exchange rate found renewed support this morning as December’s South African retail sales figures fell dramatically short of forecasts.

Investors were caught off guard by an unexpected monthly contraction in sales, which dropped -0.4% rather than demonstrating fresh growth of 1.5% as expected.

Coupled with the significant downturn in sales on the year this suggests that sentiment among South African consumers deteriorated sharply in the final month of 2019.

As recent industrial production data showed a slowdown all signs point towards the South African economy struggling in the fourth quarter, leaving the South African Rand (ZAR) exposed to selling pressure.

Easing Anxiety over Wuhan Coronavirus Spread Offers Risk Appetite Boost

Although market anxiety over the Wuhan coronavirus outbreak showed signs of easing this was not enough to shore up the risk-sensitive South African Rand at this juncture.

While the infection rate in China appears to be slowing, with yesterday seeing the lowest number of new infections since January, experts still urged a sense of caution.

As Chinese factories continue to reopen in the wake of the extended Lunar New Year break, however, confidence in the potential for a growth rebound could fuel greater market risk appetite.

If markets remain optimistic over the likelihood of a more limited negative impact on the global growth rate and the infection rate continues to drop ZAR exchange rates could benefit in the days ahead.

Lack of UK-EU Trade Clarity Continues to Limit GBP Exchange Rate Upside

Support for Pound Sterling (GBP), meanwhile, proved generally muted thanks to the lingering uncertainty surrounding the UK’s future trade relationship with the EU.

With the two sides looking set to clash over key issues in their next round of trade negotiations a sense of economic unease continues to hang over GBP exchange rates.

However, the mood towards the Pound could see a fresh improvement on the back of January’s RICS house price balance reading.

Evidence that the housing market saw a solid recovery in the first month of the year, shrugging off earlier political anxiety, may offer the GBP/ZAR exchange rate a rallying point.

Solid UK Wage Growth May Encourage Greater Pound Sterling Support

Further Pound gains may equally be in store next week as forecasts point towards a stronger month of wage growth in December.

An uptick in wages could offer markets fresh cause for confidence in the underlying health of the UK economy, with stronger wages likely to shore up consumer sentiment.

On the other hand, a lack of wage growth acceleration could limit the potential for economic activity to recover after the lacklustre fourth quarter gross domestic product performance.

As long as markets see reason to fear weaker UK growth in the months ahead the GBP/ZAR exchange rate may struggle to make further gains.

Louisa Heath

Contact Louisa Heath