GBP to ZAR Exchange Rate Rebounds from Fortnight Low as Brexit Delay Confirmed

March 22, 2019 - Written by David Woodsmith

STORY LINK GBP to ZAR Exchange Rate Rebounds from Fortnight Low as Brexit Delay Confirmed

After rallying on the back of higher risk-sentiment due to this week’s Federal Reserve news, the South African Rand steadied a little at the end of the week which made it easier for the British Pound to South African Rand (GBP/ZAR) exchange rate to rebound from its worst levels. Looking ahead, Brexit news will be the primary cause of GBP/ZAR movement next week.

Despite a surge in demand for GBP/ZAR last week, this week’s Brexit concerns and Fed dovishness have meant the pair has essentially shed last week’s gains. GBP/ZAR opened this week at the level of 19.15 and briefly jumped higher in the middle of the week, before plummeting on a combination of Brexit fears and risk-sentiment.

GBP/ZAR touched on a two week low of 18.57 yesterday, before rebounding this morning on some light Brexit relief and trending closer to the level of 18.78 at the time of writing today.

The Rand’s domestic support has been mixed in recent sessions, as some solid South African data and market demand for riskier currencies has clashed with lasting concerns over Eskom’s ongoing power cuts in South Africa.

GBP Exchange Rate Plummet Halted as EU Agrees to some Brexit Relief

The Pound was in freefall yesterday, as markets began to panic that Britain was headed directly for a cliff-edge no-deal Brexit scenario. The Bank of England’s (BoE) March policy decision was almost entirely brushed over amid the latest Brexit chaos.

The UK government said that it did not want to delay Brexit beyond June 2019, but European Council President Donald Tusk said the EU would only allow a short Brexit extension if the government’s Brexit plan is passed before the end of next week.

As there was still doubt that the government’s Brexit plan was popular enough to pass through UK Parliament, it caused a surge in fear that the UK could face a no-deal Brexit at the end of next week.

This caused market panic and the Pound saw major losses across the board – at least until last night when the EU appeared to soften its stance somewhat.

The EU agreed to allow an even shorter Brexit date extension in the event the government cannot pass its Brexit plan next week.

If the Brexit bill does not pass, the EU will put the Brexit date back to April the 12th, in order to give the UK a little more time to come up with an alternative plan.

This small two-week delay was enough to soften market panic, but no-deal Brexit fears are still at play and have been the primary cause of the Pound’s notable losses over the past week.

ZAR Exchange Rates Hold Gains Thanks to Risk-Sentiment Surge

Market demand for riskier currencies, including emerging market currencies like the South African Rand, saw a surge in demand in the second half of the week as investors reacted to a more dovish stance from the Federal Reserve.

The Fed had previously indicated that it may hike US interest rates further this year if US economic activity was strong enough.

However, amid rising signs that the US economy was being hit by slowing global growth, the bank announced this week that it had abandoned plans to hike US interest rates in 2019.

This dovish shift in stance made investors more willing to take risks, bolstering demand for the Rand.

This was despite a lack of strong domestic support for the Rand this week. While South Africa’s latest retail sales stats were solid on Wednesday, lasting uncertainty over power cuts and energy shortages are limiting the Rand’s appeal.

Eskom, South Africa’s state-owned energy firm, has seen ongoing issues with energy in recent months.

GBP/ZAR Exchange Rate Forecast: Political Developments Remain in Focus

Last week’s GBP/ZAR movements were exacerbated by Brexit panic and Federal Reserve news.

While the South African Reserve Bank (SARB) will hold its March policy decision on Thursday, this is unlikely to be particularly influential compared to the week’s upcoming Brexit developments though.

Friday is currently still the official date that Brexit will take place on. Depending on how any debate on the government’s Brexit plan goes this week, that date could be changed to the 12th of April, or the 22nd of May.

The shorter delay will allow for the government to find some alternative plan if the Brexit bill is blocked again, while the delay to May will give the government time to implement the plan if it passes.

In comparison, the week’s economic calendar will be fairly low influence. UK growth data will be published on Friday which could influence the Pound if there are no late-week Brexit developments to drive investors.

Rand movement is most likely to react to the SARB policy decision. Potential developments in US-China trade negotiations which could influence risk-sentiment are also likely to have an impact on the Pound to South African Rand exchange rate.

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