Improved SA Production Fails to Halt Pound South African Rand (GBP/ZAR) Exchange Rate Gains
A surprise rebound in January’s South African manufacturing production data failed to prevent the Pound Sterling to South African Rand (GBP/ZAR) exchange rate gaining ground.
While the 2.5% growth in production suggests that the South African economy started the year on a stronger footing this offered little reassurance to investors.
With global anxiety over Covid-19 continuing to mount worries over the ultimate outlook of the South African economy lingered, as the trade slowdown looks set to dent domestic growth.
The prospect of the economy coming under greater pressure over the course of the first quarter limited the potential for South African Rand (ZAR) gains, with investors wary of a possible growth contraction.
In the absence of any sense of market risk appetite there was little to prevent the Rand trending lower across the board on Thursday morning.
GBP/ZAR Exchange Rate Braces for Pressure as Covid-19 Response Escalates
As the impact of the Bank of England’s (BoE) surprise interest rate cut faded Pound Sterling (GBP) found some renewed traction against its rivals.
However, with the UK government preparing to step up its response to the Covid-19 outbreak, moving into the delay phase, support for the Pound looks set to fade.
Economic activity may face further disruption as a result of new measures, particularly if a larger degree of the population goes into self-isolation.
As long as markets see a risk of the UK economy slowing over the course of the first quarter any demand for the Pound could ultimately prove limited.
Even so, Tuesday’s set of UK labour market data may offer the GBP/ZAR exchange rate another boost.
Evidence that wage growth picked up further in January could help to limit concerns over the resilience of consumer spending.
A lower unemployment rate may also encourage investors to adopt a more optimistic view of the economic outlook, for the time being at least.
Potential SARB Interest Rate Cut Casts Shadow over South African Rand
Further volatility is likely in store for the South African Rand next week, meanwhile, as markets brace for the latest South African Reserve Bank (SARB) interest rate announcement.
In the wake of several major central banks slashing interest rates in response to the unfolding Covid-19 crisis investors see a risk of the SARB following suit.
An interest rate cut could weigh heavily on ZAR exchange rates, with such a move’s ability to shield the South African economy in doubt.
As long as the global slowdown continues to gather momentum the appeal of the risk-sensitive Rand could remain muted.
Any dip in February’s inflation rate could also put a dampener on the Rand next week, offering the GBP/ZAR exchange rate another possible rallying point.
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