December 14, 2018 - Written by Ben Hughes
STORY LINK GBP to ZAR Exchange Rate Recovery Continues Despite Fresh Brexit Jitters
Despite Sterling sliding against many major currencies on Friday morning, the British Pound to South African Rand (GBP/ZAR) exchange rate rebounded. Investors sold risky emerging market currencies like the South African Rand amid concerns about slowing global growth, as well as expectations for a Federal Reserve interest rate hike next week.
This week has seen GBP/ZAR slide from the week’s opening levels of 18.07 down to a weekly low of 17.76, before rebounding towards the end of the week. At the time of writing on Friday morning, GBP/ZAR trended in the region of 18.08 after having regained all the week’s losses. However, if risk-sentiment shifts before the end of the day the pair could still end lower or higher.
GBP Exchange Rate Strength Slumps as May’s Trip to Boost her Brexit Deal Perceived as Failing
UK Prime Minister Theresa May delayed a UK Parliament vote on her negotiated UK-EU Brexit deal at the beginning of the week, in the hopes that she would be able to return to Brussels and secure additional assurances.
The bill had been widely unpopular both within May’s own party and opposition parties, meaning the bill was perceived as having little chance of passing through UK Parliament.
On Friday, following UK Prime Minister May’s attempts to get assurances from the EU that a controversial Ireland backstop plan would not be indefinite, it appeared that the EU had rejected May’s requests.
European Commission President, Jean-Claude Juncker, indicated that he did not believe technical assurances or concessions would help to satisfy May’s critics. He said:
‘Our UK friends need to say what they want, rather than asking what we want. We would like in a few weeks for our UK friends to set out their expectations because this debate is sometimes nebulous and imprecise and I would like clarifications.’
As a result, the Pound weakened when UK Prime Minister May returned from her trip to Brussels, having seemingly made no progress on any assurances.
It follows a week of turmoil for the UK government following the unpopular decision to delay the UK Parliament vote on the bill, as well as a no-confidence vote from Prime Minister May’s own Conservative Party that she survived on Wednesday.
ZAR Exchange Rates Plunge on Signs of Slowing Global Growth
After advancing earlier in the week, the risky emerging market South African Rand tumbled on Friday.
While the Rand has been supported by South African data this week, such as stronger manufacturing, retail sales and inflation results, other factors that influence market demand for risky emerging market currencies were less optimistic.
The South African Rand fell in line with rising bond yields, as well as expectations for a Federal Reserve
interest rate hike next week, signs of slowing global growth, and a surprising slowdown in China’s economy.
The risky Rand has been less appealing since the US Dollar (USD) strengthened on Thursday, in reaction to a dovish European Central Bank (ECB)
Market demand for risky emerging market currencies was further dampened by news that China retail sales grew at the slowest pace since 2003 in November.
Signs of major economic slowdown in China, the world’s second biggest economy, worsened market jitters about slowing global growth and this made investors hesitant to buy riskier emerging market currencies.
GBP/ZAR Exchange Rate Forecast: Brexit and Political Developments to Remain in Focus
Amid a lack of South African data next week, and as Pound investors become increasingly uncertain about how the Brexit process will unfold, the Pound to South African Rand exchange rate is likely to be influenced mostly be political developments throughout the next week.
Markets are anticipating any signs on the next possible step for the Brexit process.
As UK Prime Minister Theresa May lacks the support to push her Brexit deal through UK Parliament and will not be able to renegotiate it, fears are rising that a ‘no-deal Brexit’ is possible.
If the deal is not supported and fails at any potential attempts to be forced through UK Parliament, the UK could crash out of the EU with no deal at all.
On the other hand though, amid the UK political deadlock any signs that the UK government could be more likely to support a second EU referendum may leave Sterling stronger.
The South African Rand, on the other hand, is likely to react to any developments in global risk-sentiment.
If the US Dollar strengthens or there are further signs of a slowing global economy, the Pound to South African Rand exchange rate is more likely to avoid losses.
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TAGS: Pound Rand Forecasts