The Pound South African Rand (GBP/ZAR) exchange rate is currently edging higher, as increased strength in the US Dollar (USD) puts pressure on the South African Rand (ZAR) by way of their negative correlation.
However, risk appetite remains healthy and GBP/ZAR is still trading close to two-month lows.
What’s Been Happening: GBP/ZAR Slips amid UK Supply Chain Crisis
The Rand has been strengthening this week as an increasingly upbeat market mood boosted the appeal of the emerging-market currency.
In addition, the price of gold – a key South African export – has recovered to a one-month high.
ZAR also benefitted from better-than expected South African PMIs, with the ABSA manufacturing PMI jumping from 43.5 to 57.9 and the IHS Markit PMI also increasing from 46.1 to 49.9.
The Pound (GBP), on the other hand, has had a difficult week. An unexpected drop in consumer credit weighed on GBP early last week, while disappointing manufacturing and services PMIs saw it slip even further.
The PMIs highlighted concerns over the UK’s supply chain crisis. Knock-on effects from Brexit and the pandemic are causing higher prices and staff shortages, which is hampering the British economic recovery.
Three Things to Watch Out for This Week
- South Africa Business Confidence
The Rand could face headwinds following the RMB/BER business confidence index for the third quarter of this year as it’s expected to drop from 50 to 45.
- UK GDP Three-Month Average
The GDP three-month average for July is forecast to fall from 4.8% to 3.8%, which may weaken the Pound as concerns grow over a slowing economic recovery.
- Risk Sentiment
Global risk appetite has played a significant role in the GBP/ZAR exchange rate this week. If the market mood remains upbeat, ZAR could potentially hold its gains.
With both South Africa and the UK set to release some fairly lacklustre data this week, risk appetite could drive most movement in GBP/ZAR. Will the current bullish sentiment prevail?