Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Advances on Data, Rand Forecast to Make Further Falls

The Pound (GBP) to South African Rand (ZAR) exchange rate advanced to a more than two-month high on Tuesday due to the publication of better than expected GDP data out of the UK and a disappointing Trade Balance report out of South Africa.

Sterling advanced broadly against several major peers after the London based Office of National Statistics released a report which showed that the UK economy expanded by 0.9% in the second quarter of the year.

The figure beat economists’ forecasts for a figure of 0.8%.

The data also showed that the size of the economy was upgraded after the ONS moved to a new European method of measuring GDP.

Strangely, under the new method, illegal activity such as prostitution, drug dealing and other illicit activities.

‘The substantial revisions due to new methodology mean that the UK economy is now 2.7% larger than it were before the global financial crisis started. Under the old methodology the data had shown that the UK was only 0.2% larger, which implies that there is now less spare capacity in the UK economy than previously thought’ said ING economist James Knightley.

The positive report caused investors to ignore the release of weaker than expected House Price and Current Account data.

A Business Investment report however, came in well above forecasts by showing that investment increased by 3.3% in the second quarter, higher than the 1.6% figure forecast.

As the session progressed, the South African Rand fell sharply after data released by the Pretoria based South African Revenue Service showed that the nation’s trade gap widened to its biggest deficit in seven months in August.

Exports tumbled by 9.6% to 77.2 billion Rand as shipments of iron ore and coal fell by 24%. Imports increased by 1.4% to 93.5 billion Rand.

‘The large trade gap is indicative of the very slow improvements of the productive sectors of the economy. South Africa’s trade deficit is likely to remain structurally high over the medium term and it suggests that the turnaround in the currency’s fortunes seem unlikely any time soon,’ said Jeffrey Schultz, an economist at BNP Paribas.

Pound Sterling to South African Rand Exchange Rate

The South African Rand is forecast to make further declines over the coming months with two South African economists warning that the nation could slide steeply, something that will have a severe impact upon everything from food and imported vehicles.

Both economists expected further downgrades from ratings agencies Standard & Poor’s and Fitch Group, which they said would “almost certainly” force the Reserve Bank to increase interest rates “which will further negatively impact on consumers”.

The Rand is likely to weaken further on Wednesday if the latest KASIGO Manufacturing PMI data comes in weaker than forecast. Economists are expecting the PMI to fall from a reading of 49.0 to 46.9.