The South African Rand fell sharply against the Pound on Tuesday and is edging closer to its lowest level in more than a decade as fresh concerns over labour unrest weigh on the currency and as positive UK economic data boosts Sterling.
Strike action in South Africa’s metal working industry is weighing heavily upon the Rand as investors grow increasingly concerned that this latest bout of labour unrest could drag on in a similar fashion to the recent five-month long one seen in the platinum mining sector.
The strike in the metal working sector has caused Ford and Toyota to stop production in the nation as the protests disrupt the supply of needed components.
Mercedes-Benz could quickly follow in halting production with a spokesperson saying that supplies for its South African factories being at critical levels.
The leaders of the National Union of Metalworkers of South Africa are now expected to widen their strike action in order to force employers to cede to their wage demands.
The strike action is crippling a South African economy still reeling from the impacts of the recently ended platinum miners’ strike.
‘While strikes are very familiar to investors, they nonetheless have a dampening effect on confidence. South Africa will struggle with narrowing its current account deficit as import growth remains strong,’ said an analyst at Rand Merchant Bank.
The Pound meanwhile rose sharply following the release of data which showed that inflation in the UK soared to a five-month high in June and climbed closer to the Bank of England’s target of 2%.
According to the Office for National Statistics, consumer prices in the UK rose by 1.9% in June. Economists had expected inflation to rise by just 1.6% from 1.5%.
‘The news will further fuel expectations that the Bank of England will start raising interest rates sooner rather than later, with November looking the most likely month for the first hike,” said Chris Williamson, chief economist at research firm Markit.
Also aiding the Pound was the release of a separate report which showed that annual house price inflation in the UK climbed to 10.5% in May, the highest figure recorded for four years. The rise was up from the 9.9% seen in April.
The next major data release due for Sterling will be released on Wednesday. Average earnings data could offer further support to the currency if it shows that wages are improving.
South African Rand (ZAR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,South African Rand,18.3581 ,
Euro,,South African Rand,14.5608 ,
US Dollar,,South African Rand,10.7138 ,
Australian Dollar,,South African Rand,10.0286 ,
[/table]
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