Pound South African Rand (GBP/ZAR) Exchange Rate Flat as US Service PMI Boosts Risk Appetite

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Muted on Upbeat US Data

UPDATE: The Pound Sterling South African Rand (GBP/ZAR) exchange rate remained flat on Monday afternoon. This left the pairing trading at around R21.1788.

The South African Rand was offered an upswing of support following the release of the latest US services PMI.

Data revealed US service sector activity rebounded sharply last month, almost returning to levels seen before the coronavirus pandemic hit.

Although, the resurgence in coronavirus cases in the world’s largest economy which has forced some bars and restaurants to close has limited gains.

Meanwhile, separate data from Markit showed the downturn in the US service sector slowed in June which also boosted the riskier Rand.

According to Markit’s Chief Business Economist, Chris Williamson:

‘With business confidence in the outlook picking up again in June, a return to growth for the economy in the third quarter looks likely, though this will very much depend on the extent to which demand continues to strengthen. There remains a strong possibility that growth could tail off after the initial rebound due to weak demand and persistent virus containment measures. The need to reintroduce lockdowns to fight off second waves of coronavirus infections will pose a particular threat to recovery momentum, and could drive a return of the recession.’

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Jumps as Construction PMI Returns to Growth

The Pound Sterling South African Rand (GBP/ZAR) exchange rate edged 0.4% higher. This left the pairing trading at around R21.2710.

Sterling was able to make gains against the Rand this morning after data revealed Britain’s construction sector saw its fastest increase in activity since July 2018.

The construction sector’s PMI rebounded from May’s 28.9 to a better-than-expected 55.3 in June.

New orders stabilised after three months of sharp falls, however, employment fell once again which limited GBP gains.

According to Markit’s Economics Director, Tim Moore:

‘June’s survey data revealed a steep rebound in UK construction output as more sites began to reopen and the supply chain kicked into gear. House building led the way with the fastest rise in activity for nearly five years, while commercial and civil engineering also joined in the recovery from the low point seen in April.

‘As the first major part of the UK economy to begin a phased return to work, the strong rebound in construction activity provides hope to other sectors that have suffered through the lockdown period.’

Sterling was also offered some support as traders looked to this month’s crunch Brexit negotiations. Added to this, further government stimulus is expected later this week.

Traders are expecting further clarity on a UK-EU trade deal by the end of July. This has offered GBP support this week.

South African Rand (ZAR) Struggles despite Upswing in Risk Appetite

The South African Rand struggled to make gains against the Pound today as Sterling traders remained optimistic after PMI data.

The Rand was able to make gains against the safe-haven US Dollar this morning. USD was dragged lower as coronavirus infections continued to rise in the United States.

Early trade saw the return of risk appetite, as demand for the riskier Rand grew. While the rising Covid-19 cases left many investors cautious, the increased likelihood that major economies would continue to recover buoyed risk appetite.

In a note, analysts at NKC African Economics wrote:

‘With the US celebrating Independence Day, trading volumes dipped on Friday. Concerns surrounding rising infections – and renewed outbreaks after Fourth of July celebrations.

‘The Rand surged stronger during Asian trading this morning driven by improved risk sentiment.’

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

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

If SACCI’s business confidence shows sentiment has improved dramatically despite the coronavirus crisis, it will buoy the Rand.

Meanwhile, Sterling traders will be focused on this week’s trade negotiations between the UK and European Union.

If reports suggest little progress is being made as London and Brussels continue to negotiate a post-Brexit trade deal, the Pound South African Rand (GBP/ZAR) exchange rate will slide.

Millie Empson

Contact Millie Empson