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Pound South African Rand (GBP/ZAR) Exchange Rate Slumps as UK Service PMI Slowdown Deepens

Pound South African Rand Currency Forecast GBP ZAR

Negative Revision of UK Services PMI Drives Pound South African Rand (GBP/ZAR) Exchange Rate Lower

As the finalised UK services PMI for October showed a sharper loss of momentum on the month than forecast this left the Pound Sterling to South African Rand (GPB/ZAR) exchange rate under pressure.

Investors saw little cause for confidence as the PMI dipped from 56.1 in September to 51.4 in October, highlighting the increasing pressure coming to bear on the sector.

Although this reading still points towards a positive month of activity for the service sector Pound Sterling (GBP) fell sharply out of favour in the wake of the data.

As the service sector remains the primary growth engine of the UK economy the fact that momentum had already started to slow, even before the announcement of a second lockdown, weighed heavily on the Pound.

Positive Standard Bank PMI Reading Shores up South African Rand

On the other hand, the South African Rand (ZAR) found favour in the wake of an unexpectedly improved Standard Bank PMI.

As the index jumped from 49.4 to 51 this pushed the reading back into positive territory, encouraging greater confidence in the performance of the South African economy.

This reading represented the private sector’s strongest expansion in 31 months, suggesting that the economy started to turn a corner at the start of the fourth quarter.

However, the risk-sensitive Rand may struggle to hold onto this sense of confidence in the days ahead thanks to the sense of uncertainty surrounding the US presidential election.

Markets were ultimately disappointed that the vote did not deliver a so-called ‘Blue Wave’, with the race proving closer than anticipated.

As long as uncertainty over the race for the White House lingers this could keep markets in a risk-off mind set, braced against the possibility of the US economy weakening in the absence of fiscal stimulus measures.

Dovish BoE Policy Meeting Set to Drag on GBP/ZAR Exchange Rate

The mood towards the Pound could sour further, in the meantime, as investors await the outcome of the Bank of England’s (BoE) November policy meeting.

Forecasts point towards an increased sense of dovishness among policymakers, especially with the UK economy looking set for further disruption in the coming month.

All in all, this could push the BoE to announce fresh monetary loosening measure this week, exposing the GBP/ZAR exchange rate to additional selling pressure.

Commentary from policymakers could also spook markets if they show an increasing openness to the possibility of negative interest rates.

As long as negative rates remain a possibility, however distant, support for the Pound may well prove limited.

Unless the BoE expresses a greater sense of optimism over the underlying performance of the UK economy the GBP/ZAR exchange rate looks set to remain biased to the downside this week.

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