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Pound to SA Rand Exchange Rate Sustains Weekly Gains as US-China Trade Tensions Resurface

February 8, 2019 - Written by Ben Hughes

Despite a lack of supportive UK data or major Brexit developments, the British Pound to South African Rand (GBP/ZAR) exchange rate has been able to advance this week. While some Brexit speculation has supported Sterling, the primary reason for GBP/ZAR gains has been market risk-aversion causing broad late-week weakness in the South African Rand.

Since opening this week at the level of 17.42, GBP/ZAR briefly tumbled to a six month low of 17.30 on fresh Brexit fears before rebounding towards the end of the week. GBP/ZAR surged and touched on a weekly high of 17.73 last night, before trending closer to the level of 17.67 at the time of writing on Friday.

Sterling struggled to hold its best levels as concerns persisted that the UK could see a No-deal Brexit unless there are major Brexit developments in the coming weeks.

However, risky emerging market currencies like the South African Rand were even less appealing as worsening US-China trade tensions and other factors weighing on risk-sentiment left investors avoiding risks.

Pound (GBP) Exchange Rates Benefit from Soft Brexit Hopes

Investors found the Pound more appealing than the South African Rand towards the end of the week, as despite the week’s poor UK data and Brexit jitters, Thursday’s news was enough to bolster the currency’s support.

On Thursday, the Pound was briefly sold as the Bank of England (BoE) cut Britain’s growth rate and said that Brexit-associated risks had worsened.

However, Bank of England Governor Mark Carney said in a following press conference that despite these downside factors markets should not necessarily bet that this means an interest rate cut has become more likely, or even that the bank will stop hiking interest rates.

These comments made the Pound more appealing, and Sterling saw a further boost thanks to news that the UK government had secured another round of negotiations with the EU.

The EU has previously said it will not change its stance regarding the issue of the Irish backstop, but investors are hoping that some kind of concession will help the government’s Brexit deal to push through Parliament and lead to a soft Brexit.

While the Pound’s potential for gains was limited by persistent concerns that the formal Brexit date is now under 50 days away and No-deal Brexit fears persisted, this speculation helped it to sustain gains versus the unappealing Rand.

South African Rand (ZAR) Exchange Rates Tumble as US-China Trade Tensions Flare Up

At the end of the week, investors sold risky emerging market currencies like the South African Rand as concerns about US-China trade tensions flared up again and markets entered a risk-off movement.

Overnight, US President Donald Trump indicated he would not meet again with China President Xi Jinping before the 2nd of March.

The 2nd of March is also a deadline of sorts for trade talks, as the US is set to ramp up tariffs on China after this date.

As a result, Trump’s comments have worsened concerns that the US and China will not be able to reach an agreement on trade. This has knocked risk-sentiment and caused the South African Rand to tumble.

According to Jasper Lawler, Head of Research at London Capital Group:

‘Up to now the markets have been optimistic about a trade deal being reached, despite little solid evidence. Trump’s stance is now rattling investor nerves just weeks before the deadline.’

Pound to South African Rand (GBP/ZAR) Exchange Rate Forecast: Brexit Developments and South African Data Ahead

With the UK-EU Brexit deal set to face debate in UK Parliament once again in the middle of the month, markets are hoping that the government can boost the popularity of its deal before then.

As a result, Pound investors will be carefully watching fresh UK-EU negotiations. Any surprising developments are likely to have a big impact on the Pound’s movement over the coming days.

However, a lack of developments would instead make investors more analysts as the penultimate month before the formal Brexit date draws on and the possibility of a No-deal Brexit remains.

Market risk-sentiment is likely to be influential for the South African Rand, and GBP/ZAR could see some further gains if US-China trade tensions worsen again. Optimistic US-China news would knock GBP/ZAR lower.

The South African Rand may also be driven by upcoming South African data, including unemployment rate and manufacturing data on Tuesday, with retail sales results following on Wednesday.
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