Loss of Momentum in Monthly UK GDP Drags Down Pound South African Rand (GBP/ZAR) Exchange Rate

Pound South African Rand (GBP/ZAR) Exchange Rate Slides as UK Gross Domestic Product Misses Forecast

The Pound Sterling to South African Rand (GBP/ZAR) exchange rate lost ground in the wake of the UK gross domestic product report, even though the headline quarterly growth rate hit a record high.

Quarterly growth of 15.5% fell slightly short of market forecasts, limiting the data’s positive impact on Pound Sterling (GBP).

The mood towards the Pound also soured as a result of the monthly GDP reading, with September’s figure showing a greater loss of momentum on the month than anticipated.

As the economy has failed to hold onto much of its initial pace of recovery this added to fears that the fourth quarter could see a return to negative growth, pushing the UK into a double-dip recession.

Increasing jitters over the impending deadline for a draft Brexit deal added to the bearish mood, leaving GBP exchange rates on the back foot once again.

South African Rand (ZAR) Muted Thanks to Underwhelming Production Figures

Even so, support for the South African Rand (ZAR) proved rather muted this morning as September’s mining production figures showed an unexpected monthly deterioration.

With signs continuing to point towards weakness within the South African economy the appeal of the Rand diminished.

Although the third quarter unemployment rate did not spike quite as high as forecast, clocking in at 30.8% rather than 33.4%, this still represented a significant blow to confidence in the economy.

All in all, South Africa looks set to come under increasing pressure in the final months of the year, something which is likely to further stoke fears over the country’s high debt levels.

A lack of market risk appetite also exposed ZAR exchange rates to a degree of selling pressure, meanwhile.

Signs of BoE Dovishness Set to Put Pressure on GBP Exchange Rates

Upcoming commentary from Bank of England (BoE) Governor Andrew Bailey could see the Pound shedding further ground this afternoon.

While the BoE did not make any fresh mention of negative interest rates in its November meeting minutes investors remain wary of the possibility of a future rate cut.

Unless Bailey continues to talk down the prospect of interest rates going into negative territory next year the appeal of the Pound could well weaken further.

If the policymaker expresses any greater sense of anxiety over the outlook of the UK economy this could also see the GBP/ZAR exchange rate trending lower ahead of the weekend.

Fading Risk Appetite May Limit Potential for South African Rand Gains

Without the support of market risk appetite the South African Rand may struggle to capitalise on the relative weakness of the Pound, though.

As the initial relief rally that greeted Pfizer’s announcement on the relative success rate of its trial Covid-19 vaccine faded this limited the appeal of the risk-sensitive Rand.

With a widespread vaccination unlikely to come into availability until next year any lingering degree of market optimism may struggle to sustain itself in the coming days.

However, if the US Dollar (USD) comes under renewed pressure the decline of the safe-haven demand could help to temporarily bolster ZAR exchange rates.

Louisa Heath

Contact Louisa Heath