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Pound to South African Rand Exchange Rate Rallies After Brexit Transitional Deal Agreement

March 19, 2018 - Written by John Cameron

Last week, the Pound to South African Rand exchange rate steadily rose from an opening level of 16.3919 on Monday to close higher around 16.7017 on Friday.

The only UK event of note was Tuesday’s spring statement, which saw Chancellor Philip Hammond make cautiously optimistic predictions about future UK economic growth.

There were a number of critics of the Chancellor’s outlook, but the GBP/ZAR exchange rate rise was also enabled by increasing demand for safe haven currencies like Sterling.

Throughout the week, there was increased concern about the impact that US metal tariffs would have on the global marketplace; these will be activated on 23rd March.

While neither the UK nor South Africa have achieved exemptions yet, it was concluded that due to its reliance on metal mining South Africa would be more adversely affected.

Specific South African news that damaged the Rand concerned the distribution of land ownership, with decades-old fears about violent reprisals against white landowners once again coming to the fore.

Pound to South African Rand (GBP/ZAR) Exchange Rate Soars on Brexit Breakthrough

The hitting of a major landmark in Brexit talks has boosted the Pound today, pushing Sterling up against the Rand and peers such as the US Dollar and the Euro.

The main point of this announcement is that a transitional period has now been agreed, which will stretch from March 2019 until December 2020.

The transition is largely expected to keep existing business conditions unchanged until the end of 2020, which should minimise disruption and allow plenty of time for adaptation.

Another positive is that the rights of EU citizens moving to the UK during the transition will be the same as those who arrived before Brexit.

While the status of EU citizens in the UK after Brexit is unclear, for the moment this issue has also been considered dealt with.

Brexit Secretary David Davis has suggested a gathering momentum which could lead to further near-term Brexit announcements, saying;

‘We must seize the moment and carry on the momentum of the last few weeks.

The deal today should give us confidence that a good deal for the UK and EU is closer than ever before’.

Despite this optimism, not every aspect of Brexit has been resolved today – one key outstanding issue is the status of the Irish border after the UK exits the EU.

As it stands, EU officials have proposed keeping Northern Ireland in the customs union while the rest of the UK leaves – this would prevent a hard border with Ireland.

Previously, however, Prime Minister Theresa May and the Democratic Unionist Party (DUP) have vehemently rejected the idea.

The situation was last left with EU officials asking the UK to provide a better solution, but as the Irish border issue remains live, the implication is that nothing suitable has been provided.

Rand to Pound Exchange Rate Tumbles on Continued Metal Tariff Concerns

The Rand has slumped against the Pound today, like many other rivals of the UK currency.

As well as the Pound’s strength reducing demand for the Rand in the ZAR/GBP pairing today, the South African currency has also been weakened by trade concerns.

Uncertainty about soon-to-be enforced US metal tariffs remains, as South African has two vested interests in tariff-free trade.

The first is South Africa’s own exports of steel to the US, which will have punitive charges imposed on them.

The other factor is the status of iron ore, which South African mines extract.

As well as been used being used to produce ZA steel, this commodity is also sent to other steel producing nations.

If those nations previously exported their steel to the US but will cease doing so because of the tariffs, demand for South African iron ore could be reduced.

Pound to South African Rand Exchange Rate Forecast: Are Historic GBP/ZAR Gains Incoming on UK Inflation Data?

The Pound’s strong start to the week could improve further on 21st and 22nd March, when high-impact inflation and wage growth data will be released.

Inflation levels on the year in February are predicted to have slowed, while rates of wage growth in January is expected to have increased from 2.5% to 2.6%.

Although the UK wage squeeze will remain in effect even if inflation drops to the predicted 2.8% level, the smaller gap between wages and inflation could still boost GBP demand.

For South African Rand watchers, the main data to look out for will be retail sales figures on 22nd March, which have currently been forecast positively.

If year-on-year and month-on-month sales are reported to have grown in January, the South African Rand could make a late-week recovery against the Pound.

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TAGS: South African Rand Forecasts

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