- British Industry Falls into Recession – Causes stutters in Pound (GBP) rally
- Sterling Remains Sturdy – Undervalued Pound seeing profit-taking movements
- Volatile Rand (ZAR) Plummets on Risk-Off – Poor unemployment news also weighs Rand down
- Forecast: ‘Super Thursday’ Ahead – Will the Rand recover if the BoE disappoints?
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate attempted an advance on the back of poor Rand sentiment during Wednesday’s session, climbing by as much as 0.7% before trimming gains.
After hitting a near two-month high of 22.1702 on Tuesday, GBP/ZAR dipped back down on concerning UK news, with the volatile pair currently trending widely between 21.8057 and 22.0591.
Pound (GBP) Rally Slows on Economic Concerns
The Pound’s uncertain week continued through Wednesday’s session as mixed industrial and manufacturing production data led to shocking news that Britain was entering its third industrial recession in eight years.
The news follows a series of bearish British economic reports published over the last week, beginning with last week’s PMI revelation that British economic growth could near stagnation in Q2.
The bad news continued during Tuesday’s session, where Britain’s key trade deficit was revealed to have widened to its worst point since 2008 in Q1 2016.
Despite the Office for National Statistics (ONS) reporting that Q1 2016’s deficit figures were well below Q4 2015’s, investors engaged in profit-taking in response to news that March’s deficit figures were better month-on-month than analysts predicted.
However, the Pound’s defences looked to be even lower on Wednesday. According to the BBC, the mixed industrial and manufacturing production reports paint a bigger, more bearish picture.
‘Although industrial production rose 0.3% from February to March, it fell 0.4% both in the first three months of 2016 and in the last three of 2015.
Compared with a year ago, manufacturing production in the first quarter fell 1.9%, the biggest fall since 2013.
The biggest fall in output came from the basic iron and steel sector which saw production drop in March by 37.3% percent compared with a year earlier.’
The report notes that economists are optimistic towards the rest of 2016 however, which may have allowed the Pound to continue advancing against the Rand.
Rand (ZAR) Throttled by Low Risk Appetite and South African Data
While the risky Rand recently recovered from six-month-lows due to commodity prices not dropping as low as analysts expected, the currency is still down against many of its major rivals this week, including Sterling.
The fluctuating price of commodities like oil and iron ore have left volatile risky currencies unappealing as they fluctuate unreliably in reaction to commodity news.
A primary cause for the Rand’s weakness this week however, is Monday’s Q1 unemployment rate which printed well above expectations and sent the South African Rand reeling.
Business Insider UK reports;
‘The country’s unemployment rate increased to 26.7% in the first quarter of 2016, up from 24.5% in the fourth quarter of 2015, according to the Quarterly Labour Force Survey.
Economists were expecting the rate to increase to “only” 25.30%.
Meanwhile, the “expanded” unemployment rate, which includes people who stopped looking for work, also ticked up. It came in at 36.3%, above the previous quarter’s 33.8%. That rate was even worse in some rural regions, exceeding 50% in one area.’
South Africa’s treasury expects the nation’s economy to grow by a small 0.9% in 2016, meaning that growth simply isn’t significant enough to create enough new jobs.
Pound Sterling to South African Rand Exchange Rate Forecast: How Will ‘Super Thursday’ Affect GBP/ZAR?
Data is due for both Britain and South Africa during Thursday’s session, with the UK’s so-called ‘Super Thursday’ likely to inspire movement in the GBP/ZAR exchange rate.
The Bank of England (BoE) is due to announce its May interest rate decision and asset purchase targets, alongside a new inflation report.
While key rates are widely expected to be left frozen, the central bank is likely to indicate what future policies could be, particularly in the aftermath of June’s EU referendum vote. Investors are also certain to react to the inflation report.
South Africa, on the other hand, will see the release of a slew of production figures during Thursday’s session. This includes gold production, mining production and manufacturing production, with most scores predicted to worsen.
The Rand is also likely to see long-term weakness as investors continue to fear that South Africa’s credit rating could be downgraded to ‘junk’ by major credit ratings agencies.
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate trends in the region of 21.8500, while the South African Rand to Pound Sterling (ZAR/GBP) exchange rate trades at around 0.04580.
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