The South African Rand (ZAR) weakened sharply against the Pound (GBP) on Monday as concerns over the health of the global economy weighed upon demand for emerging market economies.
Another bout of disappointing data from Germany and the USA heightened fears that the global economy is slowing down which caused the South African Rand to weaken alongside other emerging market currencies such as the Indian Rupee.
Concerns over the global economy began to rise again earlier in the session after data released in Germany showed that business confidence in the region’s largest economy fell to its lowest level in almost two years. Worries over low inflation, high unemployment and slowing productivity in the Eurozone, one of South Africa’s largest trading partners saw investors increase their demand for safer haven assets such as the Swiss Franc (CHF) and Japanese Yen (JPY).
The German data published by the IFO think tank showed that the nation’s business climate index declined to a reading of 103.2 in October, down from the 104.7 level recorded in the previous month.
‘We’re in a downward spiral in terms of mood. The original mood killers – geopolitics, Eurozone weakness, German economic policy and deflation concerns have led to big downward revisions of forecasts and the weaker economic expectations are now weighing on sentiment,’ said Andreas Scheuerle, an economist at Dekabank.
Worries over the global economy’s strength were heightened in the afternoon after data showed that activity in the world’s largest economy’s service sector slowed in October. The data showed that flash services Purchasing Managers Index (PMI) slipped to 57.3 from the previous month’s figure of 58.9, the lowest level seen since April. Economists had been expecting a figure of 58.0.
The new business component of the index slid to its lowest level in three months and the Composite PMI slipped from 58.9 to 57.3.
South African Rand to Pound Sterling (ZAR/GBP) Exchange Rate Forecast
The Rand is likely to remain under pressure against the Pound in a week, which looks set to be dominated by Wednesday’s Federal Reserve Interest Rate and quantitative easing decisions.
Also on Wednesday, the South African Reserve Bank is due to release its money supply and private credit figures, whilst Thursday sees the publication of the latest unemployment data.
A lack of domestic market moving data for the Pound will likely see the currency react to international events and data releases.
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,17.6723 ,
Euro,,South African Rand,13.9072 ,
US Dollar,,South African Rand,10.9620 ,
Australian Dollar,,South African Rand,9.6518 ,
[/table]
