Home » GBP » GBP to ZAR » GBP/ZAR Exchange Rate Advances on Damp Market Sentiment, Weak Mining Production

GBP/ZAR Exchange Rate Advances on Damp Market Sentiment, Weak Mining Production

GBP/ZAR Pound South African Rand Currency Forecast
  • Pound Sterling (GBP) Exchange Rates Edge Higher – Slight err towards appreciation thanks to better-than-expected trade data
  • South African Rand (ZAR) Struggles – Weak commodity prices weigh on market sentiment
  • GBP/ZAR Exchange Rate Forecast to Hold Gains – Positive SA manufacturing output not enough to offset ZAR losses

The combination of damp market sentiment, falling commodity prices and weak mining production caused the South African Rand to decline versus the Pound Sterling on Thursday. Positive British trade data also aided Sterling gains, although ‘Brexit’ uncertainty continued to limit the Pound’s appeal.

Pound Sterling (GBP) Exchange Rates Edge Higher despite EU Referendum Uncertainty

The British Pound edged higher against the majority of peers on Thursday despite ongoing EU referendum uncertainty, as the debate between opposing sides heated up.

With just two weeks to go until votes are cast, traders are finding it increasingly difficult to predict Sterling movement. This has actually resulted in reduced volatility and investors have been far more reactionary to domestic data.

Thursday’s Sterling uptrend can be linked to trade data, which saw the deficit narrow in April for all three measures. The better-than expected deficit was led by surprising export growth, the biggest rise since record began in 1998. Martin Beck, senior economic advisor, said;

‘So as things stand net trade is likely to exert a drag on GDP growth in Q2, unless April’s apparent export strength is sustained. The chances of this happening would appear to be relatively low. Global growth remains pretty subdued and sterling has regained a good chunk of its losses from earlier in the year, so the backdrop for exporters remains very challenging.’

Howard Archer, chief economist at IHS Global Insight, was quick to warn that trade data can be highly volatile and subject to revisions, so it is important not to read too much into a single month’s data.

‘April’s data suggests that net trade could actually make a positive contribution to UK GDP growth in the second quarter, having been a significant drag in the first quarter of 2016 and through the second half of 2015. We had expected UK GDP growth to be limited to 0.2-0.3 per cent quarter-on-quarter in the second quarter, but [now] expect 0.4 per cent quarter-on-quarter expansion. This assumes that heightened uncertainty does have some dampening impact on activity in May and June.’

South African Rand (ZAR) Exchange Rates Tumble as Mining Output Struggles

After China’s inflation data disappointed, the resultant downtrend in commodities prices and falling Asian stock values caused market sentiment to dampen considerably.

As an emerging-market asset, the South African Rand declined as traders fled from risk-correlated assets and sought safe-haven currencies. US Dollar strength also added to ZAR headwinds.

South Africa’s ecostats produced mixed results on Thursday, but market sentiment somewhat overshadowed domestic data results.

April’s Manufacturing Production bettered expectations on both an annual and monthly basis. In response to the figures, John Ashbourne, Africa-based economist at Capital Economics, said;

‘Today’s figures suggest that the economy gained a bit of momentum at the beginning of second quarter. The mining and manufacturing sectors will play key role in determining whether South Africa avoids a second quarter of contraction, and thus a technical recession.’

However, South Africa’s Mining Production data painted a very different picture with April’s annual reading slumping by -6.9%. Jeffrey Schultz of BNP Paribas said;

‘The outlook for the industry remains unsettling given a subdued commodity price outlook, wage negotiations in the platinum sector which kick off soon and depressed confidence and investment in the sector as policy uncertainty continues to weigh.’

Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Forecast: UK Construction Output in Focus

With a complete absence of South African data tomorrow, the GBP/ZAR exchange rate is likely to see changes in response to the UK’s Construction Output data.

With that said, however, market sentiment as well as US Dollar strength may also play a significant role in GBP/ZAR exchange rate volatility.

There is also potential for the UK’s construction data to be completely outweighed by EU referendum developments. However, a positive result would suggest that the UK’s sectoral growth issues are showing sign of abating even after economists’ predicted the period of uncertainty would significantly impact production levels.

The Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending within the range of 21.3380 to 21.5700 during Thursday’s European session.

Comments are closed.