September 25, 2017 - Written by John Cameron
STORY LINK GBP ZAR Exchange Rate Volatile Following BoE?s Credit Report
The Pound South African Rand (GBP ZAR) exchange rate has fluctuated this morning as the Bank of England (BoE) released its latest consumer credit report.
Pound (GBP) Stumbles on FPC Stability Report
Sterling found its attempts to rally from its losses at the end of last week cut short this morning as the BoE’s Financial Policy Committee (FPC) released its latest financial stability report.
The Pound was weakened by the report as the bank issued a warning about the ‘pocket of risk’ posed by the UK’s burgeoning consumer credit.
The FPC warned that Britain’s banks were currently unprepared to deal with a potential downturn in the economy and the huge numbers of consumers who would then likely default upon their debt repayments.
The FPC report read;
‘This is not a material risk to economic growth, as consumer credit represents only 11% of overall household debt. It is a risk to banks’ ability to withstand severe economic downturns, because this asset class is disproportionately more likely to default. Although the overall credit quality of consumer credit has improved significantly since the financial crisis, the FPC judges that lenders overall are placing too much weight on the recent performance of consumer lending in benign conditions as an indicator of underlying credit quality. As a result, they have been underestimating the losses they could incur in a downturn.’
While the BoE does not expect anything as catastrophic as the financial crisis the central bank is pushing financial institutions to set aside an additional £10bn in order to help covers any losses incurred by such a scenario.
The FPC’s latest report has also worried investors as it also assessed the potential impact of Brexit on the UK’s economic stability, particularly in regards the city of London’s colossal £20tn derivative contracts market which is reliant upon easy economic access to the rest of Europe.
South African Rand (ZAR) Unstable on Mixed Performance of Commodity Markets
The South African Rand has been meet by volatility this morning being partly driven by movements in commodity prices.
Part of this volatility was caused by a sharp drop in iron ore prices last week, which while only accounting for 3.7% of the nation’s exports, has plummeted 14.5% in the last couple of weeks, hitting a low of $63.56 a tonne by the end of trading on Friday.
Meanwhile prices for South Africa’s single largest export, gold have risen again this morning, advancing by around 0.1% as the increased political uncertainty of the weekend drove investors towards ‘safe haven’ assets and helping to offset the losses caused by the downturn in iron ore.
However it wasn’t just commodity markets which were impacted by the recent rise in political uncertainty as Rand sentiment was also pressured by the recent elections in both Germany and New Zealand as well as the growing tensions in North Korea.
With investors seeking to wait out the current bout of uncertainty the historically riskier Rand has found itself out of favour as markets move towards the Japanese Yen and other more stable currencies.
GBP ZAR Forecast: UK Mortgage Approvals to Rise?
Looking ahead the GBP ZAR exchange rate may begin to push higher again on Tuesday as the British Bankers Association (BBA) releases its latest mortgage figures, with economists forecasting that the number of home loans approved by UK banks will have risen slightly in August.
Meanwhile a lull in domestic data may leave the South African Rand a little directionless in the first half of this week’s session, with the first economic figures set to be released on Thursday, with an expected drop in South Africa’s Producer Price Index (PPI) unlikely to provide the Rand with much lift either.
Current Interbank Exchange Rates
At the time of writing the GBP ZAR exchange rate was trending around 17.9069 and the ZAR GBP exchange rate was trending around 0.5533.
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TAGS: South African Rand Forecasts