A lack of supportive factors in Pound trade this week have made it difficult for the British Pound to South African Rand (GBP/ZAR) exchange rate to hold all of its weekly gains. With the US Dollar (USD) rally finally coming to an end, demand for the South African Rand has been much stronger.
Despite this, GBP/ZAR remained above the week’s opening levels during Wednesday trade. GBP/ZAR opened the week at the level of 16.60 and touched on a weekly high of 16.87 on Wednesday morning. At the time of writing though, GBP/ZAR trended closer to the level of 16.70.
GBP Fails to Hold Best Levels Amid Lack of Domestic Support
There simply hasn’t been much reason for investors to buy the Pound over the past week. Last week saw the publication of Britain’s latest disappointing inflation and growth rate reports, and nothing since then has made investors more optimistic.
Instead, concerns about Britain’s economy persist and Brexit uncertainties continue to leave the British currency broadly unappealing in the mid to long-term.
As a result, a limp Sterling has been driven largely by movement in rivals so far this week. For example, this week’s GBP/ZAR gains have been due to weakness in the Rand, influenced by market hesitation to buy emerging market currencies.
The latest bearish comments on Britain’s economic outlook and Brexit uncertainties from economists have limited Pound demand and made it easier for a Rand recovery to push GBP/ZAR lower on Wednesday.
According to Andrew Sentance from PwC:
‘The pattern of rather mixed data for the UK economy has continued this month, though it is also clear that bad weather had a significant dampening effect on a number of economic indicators for the first quarter of the year.
Even allowing for the weather, however, the UK continues to underperform relative to its major trading partners. UK GDP is just 1.2% up on a year ago, compared with a 2.5% increase in the eurozone and a rise of nearly 3% in the US. The sluggish growth of consumer spending remains the main source of weakness on the demand side of the economy.’
ZAR Recovers as Analysts Predict Stronger Gains Ahead
Earlier in the week, the persistent strength of the US Dollar (USD) limited market demand for emerging market currencies like the South African Rand – despite decent domestic support.
News that S&P had left South Africa’s credit rating unchanged and noted that the economy was expected to improve in the next year. This helped the Rand to avoid further losses.
On Wednesday, GBP/ZAR fell from its weekly highs as US Dollar (USD) demand weakened and investors found emerging market currencies like the Rand more appealing again.
Some disappointing US growth data was published during Wednesday’s American session. As US growth disappointed, Federal Reserve interest rate hike bets slipped and US Dollar rivals strengthened.
Analysts also noted that the Rand was likely in oversold territory against the US Dollar. As a result, some investors believed the recently struggling Rand could be about to mount a recovery.
GBP/ZAR Forecast: Rand Recovery Could Continue
Unless Thursday’s South African trade report is highly disappointing, or the US Dollar (USD) suddenly sees another surge in demand, the Pound to South African Rand exchange rate could lose all of its weekly gains before markets close for the week.
With analysts seeing the Rand as oversold and domestic factors in South Africa’s economy gradually improving, the South African Rand could be in for a recovery rally.
This is unlikely to change unless there is a notable surprise in some of the data due for publication before the end of the week.
Britain’s May consumer confidence survey from Gfk will be published on Thursday, as well as Bank of England (BoE) consumer credit data from April. South Africa’s April trade balance report will be published.
Friday will see the publication of manufacturing PMI data for May from both the UK and South Africa.
If Britain’s manufacturing PMI indicates that UK economic activity was surprisingly high in May, this could boost the Pound and help it to avoid shedding ground against the Rand towards the end of the week.
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TAGS: Pound Rand Forecasts