Pound South African Rand (GBP/ZAR) Exchange Rate Strengthens on Market Risk Aversion
A weakening sense of market risk appetite benefitted the Pound to South African Rand (GBP/ZAR) exchange rate, as the New Year rally in global commodity prices petered out.
In the wake of several weeks of solid gains confidence in the South African Rand (ZAR) has faltered, with the initial wave of optimism over the leadership change in the ruling ANC party finally fading.
A resurgent US Dollar (USD) has also weighed on ZAR exchange rates this week, with Federal Reserve policymakers adopting a more hawkish tone on the subject of interest rates.
This helped the GBP/ZAR exchange rate to hold onto an uptrend on Tuesday, albeit a relatively muted one.
May’s Cabinet Reshuffle Fails to Encourage Pound (GBP) Exchange Rate Surge
Although the BRC’s December like-for-like sales figure bettered forecast this failed to boost the GBP/ZAR exchange rate, with political jitters still limiting investor demand.
Markets were not impressed by the rather anti-climactic nature of Theresa May’s much-anticipated cabinet reshuffle, with the Prime Minister failing to wield any particular influence over her ministers.
With none of the major posts changing hands, and health secretary Jeremy Hunt reportedly refusing to move, the exercise only served to highlight the relative weakness of May’s position.
This suggests that concerns over UK politics are likely to remain a downside influence on GBP exchange rates for some time to come, especially as speculation over Brexit picks back up.
All in all, with the outlook of the UK economy still appearing rather mixed the GBP/EUR exchange rate struggled to find any particular momentum.
Weak South African Manufacturing Data Forecast to Weigh on ZAR Exchange Rates
Any disappointment from the latest South African manufacturing data could help to shore up the GBP/ZAR exchange rate, however.
Forecasts point towards a more pronounced contraction of the ABSA manufacturing PMI, which is expected to slip from 48.6 to 46.7 in December.
As the measure has remained trapped in a state of contraction since May another weak showing is likely to weigh heavily on the Rand.
While there are hopes that fresh leadership will reinvigorate the ailing South African economy this is unlikely to mitigate the negative impact of signs of continued weakness in the short term.
Friday’s consumer confidence data could also put pressure on ZAR exchange rates, with the mood forecast to have remained rather negative in the final quarter of 2017.
GBP/ZAR Exchange Rate Jitters Forecast Ahead of BoE Credit Survey
The GBP/ZAR exchange rate could falter ahead of Wednesday’s raft of UK trade and production data, with forecasts suggesting that November saw another widening of the trade deficit.
Even though worries over Brexit have eased a little in recent weeks, after talks were cleared to progress to their second phase, the possibility for further trade disruption remains.
As a result, any weakening of the UK trade balance is likely to encourage investors to sell out of the Pound (GBP).
Focus will also fall on the Bank of England’s (BoE) latest Credit Conditions and Bank Liabilities surveys, as markets continue to bet on the odds of further monetary tightening.
Even so, analysts at Danske Bank noted:
‘We expect the BoE to keep interest rates unchanged for the next 12M in a scenario with moderate GBP appreciation. The market is currently pricing in the next 25bp hike in September 2018, which is too early in our view – unless the GBP weakens considerably.’
If the BoE expresses fresh concern over domestic credit conditions then the GBP/ZAR exchange rate could return to a bearish trend.
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