Written by John Cameron on February 28th, 2012
The break back down through the 12.0000 level for GBP ZAR last Friday was a significant move.
Foreign Currency Market Update – GBP / ZAR Update
The Rand enjoyed another winning week against Sterling last week, taking the GBP ZAR exchange rate to 11.9779 during Friday’s session. This was the pair’s lowest level for over two weeks. The Rand has gained further ground against the Pound at the start of this week’s session, causing GBP ZAR to tumble into the low 11.90s yesterday.
South Africa’s Finance Minister, Pravin Gordhan, used last Wednesday’s budget speech to slash his domestic GDP growth estimate from 3.4% to 2.7% – bad news for the SA economy, which is in dire need of an increase in activity in order to generate the five million new jobs that the government says are needed before 2020. Meanwhile, last week provided cause for concern for investors holding Sterling-denominated assets; Wednesday’s Bank of England Minutes revealed that two committee members had voted for a £75bn increase to the UK’s QE programme. A further loosening of monetary policy by the Bank now looks almost inevitable for later in the year. Friday’s UK GDP data for Q4 failed to provide any respite for the Pound – the key figure confirmed earlier estimates that Britain’s fragile economy had shrunk by 0.2% in the final three months of 2011.
*Denotes the importance of the data item *** being the highest level.
** This month’s Nationwide House Price Survey is penned in for release in the early hours of Tuesday morning in the UK. It’s expected to show an annualised increase of 0.3% in British house prices.
** February’s GfK Consumer Confidence Survey is released in the UK in the early hours of Wednesday morning – an improvement on January’s -29 figure is anticipated.
** Later on Wednesday morning comes the release of British Mortgage Approval data for January.
** UK PMI Surveys for January for the manufacturing and construction sectors are due for release on Thursday and Friday respectively. Both are expected to show a slight weakening off from December’s figures.
The break back down through the 12.0000 level for GBP ZAR last Friday was a significant move. The fact that this week’s session has seen the pair hold below 12.0000 and trade even lower is equally significant. The improvement in global appetite for risk of recent months has seen the benchmark SP 500 share index gain over 25% since the start of October. This equities rally shows no sign of abating and until it does, the risk-sensitive Rand is likely to garner further support in the currency markets. If the forward move for the Rand continues, then the GBP ZAR rate is likely to make a renewed approach at 3rd February’s 5-month low of 11.8875. Consecutive closes below this low would send out a strong negative signal for the pair. Conversely, a shift out of risk from institutional investors could send GBP ZAR back up towards its near-term high of 12.3676 from the middle part of this month.
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