FX round-up: Sterling, dollar soar against cliff-diving rand

Sterling turned in modest gains on most key crosses this afternoon, but like the US dollar was well ahead versus the cliff-diving South African rand as markets jitters centred on the tenure of the emerging market's finance minister.

The rand's weakness has previously been linked to expectations of a sooner-than-expected US rates rise, but today it dropped like a stone on fears South African finance minister Pravin Gordhan may be replaced.

Media reported that Gordhan had been told to report to police Thursday regarding allegations of espionage in the setting-up the South African Revenue Service's National Research Group.

At about 17:08 BST, sterling was up 3.15% to 18.4037 rand, and the dollar was up 2.84% at 13.9664 rand.

Otherwise, barring a mild slip against the New Zealand dollar, the British unit advanced 0.36% to $1.3184, rose 0.45% to €1.1657 and also progressed against key commodity currencies.

"Sterling briefly broke through $1.32 against the US dollar today for the first time since the Bank of England's move to cut interest rates," said HL Currency Service's Chris Saint.

"This comes against a backdrop of broad-based gains elsewhere for the pound," he said, noting the GBPEUR held above €1.16 despite today's euro-zone July puchasing-managers' index (PMI) data.

Against this backdrop, the Euro zone's composite PMI unexpectedly nudged up to a seven-month high in August. It printed at 53.3, from 53.2 in July. The bloc's flash services PMI beat expectations, while that for manufacturing missed forecasts.

Overall, said FXTM's vice-president of market research, Jameel Ahmad, sterling appeared to be continuing its recovery.

He said this appeared to support the argument that investors had been enticed to buy the British currency after economic data last week eased fears about an immediate downturn for the UK economy.

Today, Confederation of British Industry's gauge of export orders hit its highest mark since August 2014, at -6%. Sterling's post-Brexit dive helped manufacturers' order books.

Elsewhere, European Commission's flash reading on consumer sentiment fell to -8.5 in August, from from -7.9 previously. Economists had been expecting a reading of -7.7.

The dollar limped higher against the euro, kiwi and yen, but tapered on the loonie and aussie. At about 17:08 BST, the dollar-spot index was flat at $94.520.

"Can the GBPUSD continue its rally? The previous investor mind-set for months has been to sell the rally and I don’t personally think this has changed," Ahmad added.

The week's main event remained US Federal Reserve's annual conference at Jackson Hole on Friday. Analysts were looking for Fed chair Janet Yellen to shed light on the timing of the next US interest-rate hike, following hawkish remarks from policymakers last week.

"Investors are still not buying a 2016 rate hike, even following Stanley Fischer's comments over the weekend regarding the economy," said Craig Erlam, senior market analyst at Oanda.

"Markets (are) now marginally pricing in February (for a hike) - so the probability that Yellen says something that goes against what's priced in seems quite high," he said.

Remaining with economic data, this time across the Atlantic, Markit's flash US manufacturing PMI fell more than expected to 52.1 in August, from a nine-month high of 52.9 in July.