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GBP to ZAR Exchange Rate Rebounds from Monthly Worst on Report that Brexit Date Could be Delayed

January 11, 2019 - Written by Ben Hughes

Higher demand for riskier currencies, including emerging market currencies like the South African Rand, left the British Pound to South African Rand (GBP/ZAR) exchange rate sliding for most of last week. A report claiming that Brexit could be delayed helped the pair to recover slightly before markets closed for the week, however.

After opening last week at the level of 17.79, GBP/ZAR briefly climbed before tumbling for the rest of the week. This morning, GBP/ZAR briefly slumped to a low of 17.54 – its worst level in a month. GBP/ZAR rebounded however, and trended closer to the level of 17.70 at the time of writing.

With many uncertainties remaining in the Brexit process, this sort of volatility is likely to continue next week which could prove to be a major week for Brexit. South African Rand investors are likely to focus on shifts in market risk-sentiment.

GBP Exchange Rates Rebound Slightly on Report That Brexit Could Be Delayed

There are under three months until the UK is due to formally leave the European Union – on the 29th of March 2019. This was the date set when the UK government activated Article 50 in early 2017.

With the date drawing ever nearer and the Brexit process still lacking in clarity, analysts and politicians are anxious that time could be running out, making the possibility of a worst-case scenario ‘no-deal Brexit’ uncomfortably high.

As a result, a report that emerged today claiming that unnamed ministers from the UK government were saying that the remaining timetable for the Brexit process was unachievable, leading to higher speculation that the Brexit process could be delayed.

However, the news only gave a limited boost to the Pound. UK Prime Minister Theresa May has repeatedly indicated that Article 50 will not be delayed, and some analysts also believe it may not be a good idea.

According to Mike Bell, Global Market Strategist at JP Morgan Asset Management:

‘Politicians love to kick the can down the road but there is a cost associated with that. Consumer confidence has weakened, business confidence has weakened so that time comes with a cost,’

The news followed the week’s Brexit developments, which included the UK government being defeated with two amendments aiming to give UK MPs more influence over the outcome of the Brexit process.

This, as well as comments from Labour Party Leader Jeremy Corbyn that a general election was preferable to a second referendum, left the Pound unappealing throughout the week.

ZAR Exchange Rates Strength Limited by Mixed South African Data

For most of the week, the South African Rand was able to benefit from the Pound’s Brexit-related weakness due to higher market demand for riskier currencies.

As a risky emerging market currency, the South African Rand was more appealing amid signs of progress in US-China trade negotiations and de-escalations. Falling Federal Reserve interest rate hike bets also made investors more eager to take risks.

This saw the South African Rand climbing throughout the week despite a lack of particularly impressive South African ecostats.

Thursday saw the publication of South Africa’s November manufacturing production results, which unexpectedly tumbled to 1.6% year-on-year while the monthly figure printed higher than expected.

It followed ABSA’s South African manufacturing PMI from earlier in the week, which came in slightly above expectations.

To round off the mixed week for the South African Rand, SACCI’s December business confidence figure slipped and markets expect the South African Reserve Bank (SARB) will leave South Africa’s interest rate frozen until May, when it will hike.

GBP/ZAR Exchange Rate Forecast: Brexit Developments and South African Reserve Bank in Focus

Demand for the Pound to South African Rand exchange rate is likely to be driven by UK political developments next week, as it could be one of the most pivotal weeks for the Brexit process yet.

If the negotiated UK-EU Brexit deal manages to pass through UK Parliament during Tuesday’s anticipated vote, the Pound could surge as investors become more confident that the Brexit process will end in a soft Brexit.

However, it’s perceived as more likely that the deal will be blocked, leading to a period of fresh uncertainty as UK MPs will seek another resolution.

A general election or ‘no-deal Brexit’ would cause fresh Pound weakness while any chances of a second referendum would make the Pound more appealing.

The South African Rand, on the other hand, will be driven by market shifts in risk-sentiment, such as developments in US-China trade negotiations.

Next week’s South African Reserve Bank (SARB) meeting may also prove influential towards the Pound to South African Rand exchange rate.
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