Improved SA Business Confidence Unable to Prevent Pound South African Rand (GBP/ZAR) Exchange Rate Gains
A modest uptick in South African business confidence was not enough to prevent the Pound Sterling to South African Rand (GBP/ZAR) exchange rate recovering ground.
While the index saw a slight improvement, strengthening from 92.2 to 92.7 in February, this failed to offset wider concerns over the outlook of the South African economy.
With global growth looking set to weaken in the face of the Covid-19 outbreak markets still see a significant risk of South African growth slowing in the months ahead.
This limited support for the South African Rand (ZAR), given existing concerns over the domestic outlook as the economy grapples with a relative lack of growth momentum.
Reduced Odds of BoE Interest Rate Cut Fuel Pound Recovery
Comments from incoming Bank of England (BoE) Governor Andrew Bailey offered a fresh boost to Pound Sterling (GBP), meanwhile, as the odds of a potential interest rate cut fell.
As Bailey indicated that the BoE should wait for more evidence of how the impact of Covid-19 is feeding through into the economy before cutting rates the mood towards the Pound improved.
This led markets to significantly reduce the odds of interest rates seeing a cut in the near future, boosting the GBP/ZAR exchange rate.
Even so, if incumbent BoE Governor Mark Carney takes a more dovish tone in comments this afternoon the Pound could see some fresh volatility.
Fears of Global Growth Slowdown Set to Limit South African Rand Appeal
Worries over global growth and the ultimate impact of Covid-19 could see the South African Rand come under further pressure in the coming week.
As long as trade appears on track to weaken significantly in response to the virus investors may struggle to find incentive to favour the Rand over its rivals.
However, if January’s set of South African manufacturing and mining production figures show signs of recovery next week this could offer ZAR exchange rates a boost.
Any indication of greater resilience within the South African economy would give investors less cause for caution, paving the way towards a fresh bout of Rand strength.
Softer House Price Index May Drag on Pound Exchange Rates
With market jitters over UK-EU trade talks temporarily easing the Pound could hold onto a stronger footing in the near term.
Given that the odds of a potential no-deal scenario have already largely been priced into GBP exchange rates anything short of a significant deterioration in relations is unlikely to dent the Pound.
Some weakness could be in store for the Pound ahead of the weekend, however, if February’s Halifax house price index data fails to impress.
Signs that the UK housing market lost some of its momentum last month may push the GBP/ZAR exchange rate into a renewed downtrend, given existing worries over the wider economic outlook.