Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Edged Higher on Improved US-China Relations
The Pound Sterling South African Rand (GBP/ZAR) exchange rate edged 0.2% higher on Monday morning. This left the pairing trading at around R21.6681.
The Pound was able to edge higher against the Rand after being offered a boost as the US Dollar weakened.
Risk appetite improved at the start of the week after the US response to Beijing’s new security law for Hong Kong was less severe than expected.
US President Donald Trump began the process of ending special treatment of Hong Kong. However, he stopped short of new sanctions or tariffs. This sparked an upswing in risk appetite and offered the Pound support.
Traders were left feeling optimistic that the trade deal between the United States and China will not be abandoned.
According to TD Securities’ senior EM strategist, Mitul Kotecha:
‘Markets appeared to be relieved at the lack of more aggressive, or at least more specific, actions from the US administration. This provides strong clues as to how things will look in the weeks ahead of the US election [in November].’
Meanwhile, the South African Rand suffered losses despite data showing South Africa’s Absa PMI rose more than expected.
The country’s PMI rose from 46.1 in April to 50.2 in May. Factories gradually restarted activity as coronavirus lockdown restrictions were lifted. This likely limited Rand losses this morning as the pairing edged higher.
Sterling (GBP) Edges Higher as Britain Eases Lockdown Further
The Pound edged up against the South African Rand as optimism increased after Britain eased further lockdown restrictions.
New rules to help ease lockdown restrictions came into force in England on Monday. This comes despite warnings from scientists the move was risky.
Added to this, a fourth round of trade talks between the UK and European Union are due to start this week. The country now has until 1 July to ask for an extension on the current transition period which is due to end in December.
However, Sterling gains have been limited by a number of factors including the countries high coronavirus death rate, Brexit worries and negative rate speculation.
In a note to clients, MUFG’s currency analyst, Lee Hardman wrote:
‘We expect the Pound to continue to trade at weaker levels in the near-term unless there is a surprise breakthrough in Brexit talks and/or the BoE clearly rules out negative rates after completing their ongoing review of policy options.’
UK Manufacturing ‘Mired in Deepest Downturn’ in Recent History
Sterling edged higher against the Rand after PMI data showed the country’s manufacturing PMI improved.
While the manufacturing downturn continued, May’s PMI rebounded to 40.7 from April’s record low 32.6. This likely offered GBP some support, although the impacts of the coronavirus crisis were felt across the sector last month.
Markit’s survey showed output, new orders and new export businesses all suffered steep declines, which likely limited Pound gains.
Commenting on this, Rob Dobson, Director at IHS Markit noted:
‘Those who typically see the glass half empty will note that the UK manufacturing sector remained mired in its deepest downturn in recent memory. Output, new orders and employment fell sharply again in May as restrictions to combat the spread of COVID-19 caused further widespread isruptions to economic activity, demand and global supply chains.
‘However, changes to working practices, uncertainty about how long the COVID-19 restrictions may be in place for, weak demand and Brexit worries all suggest the UK is set for a drawn-out economic recovery. This will make the ‘new normal’ one of the toughest recovery environments many manufacturers will ever have to face.’
Pound South African Rand Outlook: Will ZAR Suffer Further Losses This Week?
Looking ahead, the South African Rand (ZAR) could suffer further losses against the Pound (GBP) as traders focus on US-China relations.
If relations between Beijing and Washington show signs of deterioration this week, risk appetite could be left under pressure.
Added to this, Standard Bank’s PMI for South Africa could send ZAR lower on Wednesday. If May’s PMI plummets further into contraction, the Pound South African Rand (GBP/ZAR) exchange rate will edge higher.