Pound Sterling to Rand Exchange Rate Forecast - GBP/ZAR Gains as South African Currency Weakens

June 17, 2014 - Written by Ben Hughes

STORY LINK Pound Sterling to Rand Exchange Rate Forecast - GBP/ZAR Gains as South African Currency Weakens

Pound Exchange Rate Today - The Pound Sterling (GBP) was trading higher against the weakened South African Rand exchange rate (ZAR) on Tuesday as the conflict in Iraq continued to cause investors to shy away from higher yielding but riskier assets and as South African President Jacob Zuma prepares to deliver a major policy speech later.

Mr Zuma is due to deliver the first state of the nation address since winning power for a second term later today. All eyes will upon what he has to say as he outlines his plans to revive a faltering economy and create much needed jobs in Africa’s most advanced economy.

Last week saw South Africa receive a double blow after credit ratings agencies cut their outlook for the nation’s economy and highlighted the precarious situation faced by the country. Fitch put South Africa on a negative outlook and Standard & Poor's cut its credit rating on Friday.

The five-month long strike in the platinum mining sector is dragging the economy towards a recession and is having a significant impact upon growth and government finances. The strike was the main cause for the economy shrinking by an annualised rate 0.6% in the first quarter of the year.

“The Rand remains vulnerable to SA’s weak fundamental backdrop over the medium term. The fact that the reported wage deal in the platinum sector has yet to be signed also detracts from a Rand recovery,” said Barclays South Africa.

A crisis in South Africa’s power grid is also negatively impacting the economy as only last week two power stations failed, creating rolling blackouts through large portions of the country.

"Does the government want to bargain with the business sector and other interests to chart a new path for the economy, or does it believe it can fix its problems on its own? Much of the debate wants to hear an address that does not 'waffle' about policy but promises to 'get things done'. But if that is all we hear, we are likely to remain stuck where we are,” said Stephen Friedman, a political analyst in the Business Day newspaper.

Investors will be looking to see whether Zuma will try and address the deep mistrust between the government, private sector and unions.

Adding to South Africa’s industrial woes it was revealed that the National Union of Metalworkers of South Africa said that its 200,000 members are planning to strike from the 1st of July after employers refused their demands for a pay rise of 15%.

“President Zuma needs to acknowledge the economic difficulties that have unfolded, that confidence has fallen across the board and the economy is noticeably weaker. This is the time to rebuild with a view to restoring confidence,” said an economist at Stanlib Asset Management in a phone interview with Bloomberg.

As well as the grim news on the domestic front the Rand (ZAR) is also being put under pressure by risk aversion created by the ongoing violence in Iraq and Ukraine. According to reports Iraqi forces are fighting Sunni militants just 37 miles from Baghdad.

In Ukraine pro-Russian separatists and Ukrainian forces loyal to Kiev continued to clash in the east of the country.

The South African Reserve Bank's quarterly bulletin due out for release on Wednesday is likely to deal another blow to the currency, economists are expecting it to show the current account deficit widened to 6.1% of GDP in the first quarter from 5.1%. Also due for release are retail sales and inflation data.

Pound Rand forecast to gain on BoE Minutes

The Pound Sterling (GBP) is likely to make further gains against the Rand tomorrow as the minutes of the Bank of England’s June policy meeting are expected to show that policy makers are coming close to announcing a raise in interest rates.

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