Pound South African Rand Exchange Rate Slumps as SA Inflation Sees Slight Dip
The Pound to South African Rand (GBP/ZAR) exchange rate experienced a sharp decline as the South African inflation rate saw some modest improvement.
The headline inflation rate dipped from 3.2% to 3.1% on the year, in line with market forecasts, and offered the South African Rand (ZAR) a boost against its rivals.
A general improvement in market risk appetite also helped to shore up the risk-sensitive Rand against its rivals on Wednesday.
With markets in an optimistic mood ahead of Joe Biden’s inauguration as US president investors were encouraged to pile back into higher-yielding assets once again.
Although the UK inflation rate bettered forecasts in December this was not enough to prevent the GBP/ZAR exchange rate shedding ground over the course of the day.
Softening Business Confidence Index Forecast to Drag on South African Rand
However, the South African Rand may struggle to hold onto its positive footing in the days ahead as forecasts point towards fresh signs of economic weakness.
With the SACCI business confidence index expected to dip from 93.4 to 91.5 in December worries over the economic outlook look set to pick up once again.
As the Covid-19 pandemic continues to hang over the economy any signs of weakening business confidence are likely to weigh heavily on the Rand.
Another negative month of retail sales could also put pressure on ZAR exchange rates, with falling consumer spending offering further evidence of a slowing economy.
Even so, if the wider sense of market risk appetite prevails this may help to limit the negative impact of the latest South African data releases in the short term.
GBP/ZAR Exchange Rate Set for Fresh Volatility on Latest UK PMIs
The GBP/ZAR exchange rate could find a rallying point ahead of the weekend with the release of January’s initial UK manufacturing and services PMI readings.
As markets expect to see the manufacturing sector deliver another solid month of growth this could encourage the Pound to recover some of its lost ground on Friday.
However, another underwhelming performance from January’s services PMI may also leave GBP exchange rates exposed to fresh selling pressure.
As the service sector remains the primary growth engine of the UK economy any reading below the neutral baseline of 50 could encourage the Pound to trend lower across the board.
Forecasts suggest that the services PMI may dip from 49.4 to 45 on the month, demonstrating a deeper slowdown within the sector.
With the odds of a prolonged UK economy downturn and potential recession rising the Pound South African Rand exchange rate may struggle to return to a positive footing this week.