Daily Currency News: GBP/ZAR Exchange Rate Rises as UK Manufacturing Sector Grows

October 1, 2018 – Written by Minesh Chaudhari

Last week saw the Pound open trading against the Rand around ZA18.7752 on Monday and close slightly lower at a level of ZA18.4196 on Friday.

This overall depreciation came after UK GDP growth missed forecasts – the yearly Q2 2018 reading rose from 1.1% to 1.2%, missing the expected 1.3% printing.

Business investment stats proved similarly disappointing, with the quarter-on-quarter and year-on-year readings both printing negatively during Q2 2018.

Pound to Rand (GBP/ZAR) Exchange Rate Rises 0.5% on Manufacturing Sector Strength

A better-than-expected UK manufacturing PMI has boosted Pound Sterling (GBP) demand today, pushing the GBP/ZAR exchange rate higher.

September’s reading defied forecasts for a decline to 52.5 points, instead revealing a rise from 53 points to 53.8.

While a small change on paper, this surprising result has still boosted GBP trader confidence and pushed Sterling up against the Rand.

IHS Markit compiles the UK’s PMI data and Director Rob Dobson said of the figures:

‘September saw a mild improvement in the performance of the UK manufacturing sector.

‘Domestic market demand strengthened, while increased orders from North America and Europe helped new export business stage a modest recovery from August’s contraction.

‘Business confidence also rose to a three-month high.’

Mr Dobson added the caveat that the manufacturing sector still faces problems, saying:

‘Despite these causes for short-term optimism, conditions in manufacturing are still relatively lacklustre overall.

‘Based on its historical relationship with official ONS data, the latest survey is consistent with output expanding at only a moderate pace.’

Despite this cautionary statement, however, the Pound has still firmed against the South African Rand due to GBP trader optimism.

South African Rand to Pound (ZAR/GBP) Exchange Rate Slides on Manufacturing Sector Slowdown

The South African Rand (ZAR) has fallen against Pound Sterling (GBP) today, following the release of disappointing PMI data.

In a similar situation to the UK, today has brought manufacturing PMI stats for September.

Unfortunately for Rand traders, however, the ABSA manufacturing PMI has fallen from 43.4 points to 43.2, instead of rising to 45 points as forecast.

Summing up the negative news, ABSA analysts said:

‘The latest figure dashed any hope that the sharp PMI decline in August was a once-off occurrence.

‘While high-frequency activity data from Statistics SA suggests that the economy will exit the technical recession in the third quarter, the PMI survey inspires little hope that the economy staged a strong recovery.’

Future GBP/ZAR Exchange Rate Forecast: Will Pound Sterling Decline on UK PMI Data?

While the Pound (GBP) has risen against the South African Rand (ZAR) today because of the surprisingly positive manufacturing PMI, there may not be a repeat performance on Tuesday and Wednesday.

The next UK data to watch out for will be Tuesday’s construction PMI and Wednesday’s services sector PMI, both covering September.

Current expectations are for both PMI readings to reveal slowing activity during the month, which might lead to GBP/ZAR exchange rate losses.

A Pound to Rand exchange rate decline is especially likely if the services PMI drops, to the point that a services slowdown could override the positive impacts of a construction PMI rise.

The services sector is the single largest contributor to UK economic growth, so any signs of slowing activity could be met negatively by GBP traders and cause Pound Sterling losses.

This week’s main South African economic announcement will also consist of a PMI reading, covering Standard Bank’s stats for September.

Standard Bank’s PMI serves as a general measure of South African business performance and is predicted to show a rise from 47.2 points to 49.

Such a shift would leave the reading in the contraction range, but an improvement could still raise confidence among Rand traders.

In the event that the Standard Bank PMI rises and the UK services PMI declines, Wednesday could see the Rand rise sharply in the ZAR/GBP exchange rate.

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TAGS: Pound Rand Forecasts