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Pound South African Rand Exchange Rate Extends Decline on Stronger SA Confidence Index

GBP/ZAR Pound South African Rand Currency Forecast

Improved SACCI Business Confidence Index Dents Pound South African Rand Exchange Rate

A better-than-expected SACCI business confidence index kept the Pound to South African Rand (GBP/ZAR) exchange rate on the back foot.

As the headline index picked up from 94.3 to 94.5 in January this defied forecasts of a slight deterioration in sentiment at the start of the year.

This suggests that confidence within the South African economy started to recover some of its lost ground in January, in spite of the latest anxiety over the ongoing Covid-19 pandemic.

The improved index helped to shore up the South African Rand (ZAR) against its rivals, especially as the latest US inflation data fell short of forecast.

With demand for the safe-haven US Dollar (USD) weakened the appeal of the higher-yielding Rand improved, lifting ZAR exchange rates across the board.

Weaker SA Manufacturing Production Forecast to Limit South African Rand Appeal

However, the South African Rand may struggle to hold onto its positive footing in the days ahead with the release of December’s mining and manufacturing production figures.

Forecasts point towards fresh contraction on the month for both mining and the wider manufacturing sector, highlighting the lingering weakness of the South African economy.

As long as the manufacturing sector continues to demonstrate a slowdown confidence in the wider economic outlook could weaken further, to the detriment of ZAR exchange rates.

Any fresh deterioration in the global sense of risk appetite could also weigh heavily on the risk-sensitive South African Rand, with weaker global growth set to add to the challenges facing the South African economy.

Unless manufacturing can deliver some signs of improvement on the month the GBP/ZAR exchange rate could find a rallying point on Thursday.

Fourth Quarter UK GDP Report Set to Weigh on Pound Exchange Rates

Even so, the potential for another bout of Pound Sterling (GBP) selling remains with the release of the fourth quarter UK gross domestic product report on Friday.

While forecasts point towards the quarterly growth rate posting another positive result at 0.5% this could still leave GBP exchange rates vulnerable to downside pressure.

Any major loss of momentum for the UK economy in the fourth quarter could fuel bets of an even greater slowdown to come in the first quarter, thanks to the tightening of lockdown restrictions.

As long as investors see reason to bet that the economy could fall back into a state of contraction in the near future the appeal of the Pound looks set to diminish.

On the other hand, if the fourth quarter demonstrates greater economic resilience than anticipated this may encourage the Pound to South African Rand exchange rate to recover some of its lost ground.