Pound South African Rand (GBP/ZAR) Exchange Rate Falls despite South Africa’s Recession

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Slides on Upbeat ZA PMI

The Pound Sterling South African Rand (GBP/ZAR) exchange rate slumped by around -0.4%. This left the pairing trading at around R21.3960.

The South African Rand edged higher this morning, supported by upbeat PMI data.

South Africa’s Absa PMI expanded more than expected in June as the country eased the coronavirus lockdown restrictions.

The index showed the easing of measures boosted business activity and sales. The country’s manufacturing PMI rose to 53.9 in June, up from May’s reading of 50.2.

The Rand was able to edge higher this morning as the currency shook off data showing the economy was in contraction before the lockdown.

Data revealed South Africa’s economy contracted in the first three months of the year. This marks the third consecutive contraction, and GDP has shrunk four out of the last five quarters.

Commenting on this, Commerzbank’s Elisabeth Andreae noted:

‘The deepening of the recession is set and thus priced into the ZAR exchange rate.

‘However, markets are likely to be interested above all in how quickly the economy will come out of the trough – in particular in comparison to others. This is likely to be above all a question of time and (financial) resources.’

Pound (GBP) Slides despite Business Sentiment Hitting 21-Month High

Sterling suffered losses against a stronger Rand today despite data showing activity in Britain’s manufacturing sector improved.

The country’s manufacturing sector returned to growth after a severe downturn caused by the coronavirus pandemic. Today’s data showed activity in the sector picked up from May’s 40.7 to 50.1 in June.

Both output and business optimism improved in June, although data revealed employment suffered its fifth consecutive month of contraction.

Business sentiment also jumped to a 21-month high, with over 63% of manufacturers expecting output to increase over the coming year.

Commenting on today’s data, Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply stated:

‘June’s data shows the sector has dragged itself up from a survey-record low just two months ago into a position of no-change, as optimism rises to its highest levels for almost two years amongst manufacturers.

‘However, output remains at low levels and the sector’s weak position compared to pre-covid levels means there is a significant amount of catching up to do before manufacturing can relax into a period of growth. Purchasing continues to be hampered by battered and bruised supply chains, logistics difficulties and longer delivery times for the twelfth month in a row as suppliers adjust to the new normal.’

Pound South African Rand Outlook: Will Business Confidence Buoy ZAR?

Looking ahead, the South African Rand (ZAR) could edge higher against the Pound (GBP) following the release of business confidence data.

If SACCI’s business confidence rises higher than expected in May, it will offer the Rand some support.

However, improved consumer confidence in Britain could offer Sterling an upswing of support on Friday.

If GfK’s data reveals June’s confidence has improved more than expected, it will leave the Pound South African Rand (GBP/ZAR) exchange rate flat.

Millie Empson

Contact Millie Empson