Recent South African Budget Speech Continues to Boost GBP/ZAR Exchange Rate

February 23, 2018 - Written by Toni Johnson

STORY LINK Recent South African Budget Speech Continues to Boost GBP/ZAR Exchange Rate

The Pound Sterling to South African Rand exchange rate has tumbled today, although GBP is making solid gains elsewhere.

The strength of ZAR can be seen in its performance against other major currencies; while the GBP/ZAR exchange rate has fallen -0.6% to 16.1543, the USD/ZAR exchange rate has fallen -1% and the EUR/ZAR pairing has dropped -1.1%.

The Rand is being supported by confidence in the economic outlook as markets react to Wednesday’s Budget speech.

GBP Weakens despite Strength Elsewhere as Markets Look to Next Week’s Brexit Speeches

The Pound Sterling to South African Rand exchange rate has weakened today, despite strength in GBP elsewhere as markets await next week’s Brexit speeches.

Prime Minister Theresa May is expected to lay out the UK government’s aims with regards to trade and the transitional period in a major speech next week.

This follows last night’s gruelling 8-hour discussions through the night with her Cabinet ministers over the approach of the government to Brexit.

Health Secretary Jeremy Hunt has today claimed that ministers agreed that there should be no access to the EU customs union for the UK once the nation has separated from the bloc.

Meanwhile, a speech on productivity from Bank of England (BoE) Deputy Governor Sir David Ramsden had little impact on the Pound, with the newest member of the Monetary Policy Committee (MPC) providing a rather balanced view on output growth.

Ramsden commented;

‘To the downside, there are at least two reasons to think that productivity won’t pick up to its pre-crisis rate.’

‘The first is that after such a long period of weak productivity growth it is reasonable to argue that we are in a new paradigm of lower productivity growth, and that is reinforced by the global nature of the weakness.’

‘The second is that that the dampening effect of Brexit on productivity growth – both through the effect of uncertainty on business investment in the short run and through the need to anticipate and respond to post-Brexit trading relationships – is likely to continue for some time.’

Market Confidence in New South African Budget Sends ZAR Soaring

Confidence after Wednesday’s Budget from Finance Minister Malusi Gigaba continues to keep the South African Rand on the uptrend today, causing the GBP/ZAR exchange rate to slump.

The new Budget has been delivered now that controversial President Jacob Zuma has been ousted, with Cyril Ramaphosa taking over as the new leader of the African National Congress (ANC) party.

Ramaphosa has promised to get the economy back on track and undo the damage caused by his predecessor’s reckless and corrupt spending, as well as cleaning up South African politics and helping the nation’s poor black majority.

One of Gigaba’s main policies is to raise VAT from 14% to 15% - a risky move politically, given that there are elections coming up next year, but one that investors have approved of, as it shows the party is prepared to do what is necessary to get the economy back on track.

The three main credit ratings agencies – Fitch, Standard & Poors’ and Moody’s – all agree, having stated that they are happy with the new budget.

This is cheering news for markets, as Moody’s is the only one of the three agencies not to have lowered its assessment of South Africa’s government debt to ‘junk’; although a ratings review is upcoming.

Investors seem confident that the agency will not cut South Africa’s rating lower; today’s government bond auction saw yields fall as prices rose, indicating that demand for government debt was on the rise as investors viewed the risks of default as being on the retreat.

Quiet Data Calendar Forecast to Leave Pound Focussing on Theresa May Brexit Speech

There is no data on the UK data calendar this afternoon and Monday’s docket is also devoid of ecostats.

The only development will be a speech after the close of trading from Bank of England (BoE) policymaker Jon Cunliffe.

Markets may therefore remain focused on Theresa May’s Brexit speech.

The first South African data next week won’t arrive until Wednesday, when the M3 money supply and private sector credit figures for January will be released.

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