Pound to Rand: GBP/ZAR Exchange Rate Forecast to Weaken as General Election Concerns Weigh

May 7, 2015 - Written by Frank Davies

STORY LINK Pound to Rand: GBP/ZAR Exchange Rate Forecast to Weaken as General Election Concerns Weigh

The Pound Sterling to Rand exchange rate weakened as uncertainty over the outcome of the UK general election weighed upon sentiment.

The Rand (ZAR) exchange rate meanwhile remained under pressure from domestic concerns and worries that the global economy is slowing.

The UK general election is the tightest election for decades and investors are worried that it could result in a weak government in the world’s fifth largest economy. Final opinion polls showed that Labour and the Conservatives will not be able to win enough support to form a majority government.

Seven opinion polls were released prior to start of voting. Three of them showed that support for the two main parties was tied. Three polls put the Conservatives ahead by a single percentage point, and one gave Labour a two-point lead.

YouGov predicts that the Conservatives would end up with 284 seats to Labour's 263, with the Scottish National Party (SNP) on 48, Liberal Democrats 31, the anti-European Union UK Independence Party (UKIP) two, Greens one, and Welsh and Northern Irish parties 21.
Investors are concerned that political uncertainty could have a substantial impact on the economic performance of the UK. Coalition negotiations are expected to last longer than those seen in 2010 as Labour has ruled out a deal with the SNP, and the Lib-Dems are suggesting that they will not make a deal with the Conservatives.

‘As UK voters go to the polls, uncertainty surrounding the outcome of the UK election is also preying on sentiment as cautious investors remain on the sidelines,’ said Andy McLevey, head of dealing at broker Interactive Investors.
Further gains for the South African Rand were restrained as the currency remained under pressure from concerns that the global economy is experiencing a slowdown and domestic issues.
Domestic data showed that consumer confidence plummeted in the first quarter of 2015, as consumers were nervous because of recent civil unrest and economic weakness. Lower inflation and slower rises in food prices were not enough to spur spending.

The First National Bank/Bureau for Economic Research’s (FNB/BER) consumer confidence index slumped to -4 points from zero in the fourth quarter of 2014. High unemployment, xenophobic violence and blackouts have weighed heavily upon sentiment.

‘With the escalation of load shedding, consumers have understandably become more negative about SA’s economic prospects,’ said FNB chief economist Sizwe Nxedlana.

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