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GBP to ZAR Exchange Rate Losses Limited as South African Election Approaches

May 3, 2019 - Written by Ben Hughes

While investors rolled back from some of the week’s biggest movements on Friday, the British Pound to South African Rand (GBP/ZAR) exchange rate’s Friday losses were limited due to a lack of solid demand for the South African Rand. Despite some investors taking profit from the Pound’s gains, trade uncertainty and uncertainty ahead of next week’s South African election are limiting the South African Rand’s potential for recovery.

After opening this week at the level of 18.56, GBP/ZAR briefly dipped before spending the rest of the week enjoying solid advances. On Friday morning, GBP/ZAR even briefly touched a one month high of 18.99 before slipping back slightly, and trending closer to the level of 18.88 at the time of writing.

As the primary cause of Pound to South African Rand exchange rate gains over the past week was Brexit speculation, this also means that the pair could shed most of its recent gains if investors become more concerned about Brexit again next week.

GBP Exchange Rates Sold from Highs amid Profit Taking and Weaker UK Data

For most of the past week, investors bought the Pound due to speculation that a softer Brexit deal could be reached, and would be able to pass through UK Parliament.

Reportedly, cross-party negotiations between the government and the opposition Labour Party took a more optimistic tone over the past week, briefly causing a surge in hopes that a compromise was possible.

This led to a soaring Pound, which easily gained amid weakness in the South African Rand.

However, towards the end of the week amid a lack of fresh solid developments in Brexit talks, markets began to become more doubtful again.

The Pound was sold slightly from its best levels in profit-taking, and the latest UK data didn’t help the Pound to hold its weekly gains either.

Britain’s April services PMI was published this morning, and printed at 50.4 rather than the expected 50.5. The figure, still worryingly close to stagnation, indicated that Brexit uncertainty was having an impact on UK services activity as well.

According to Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply:

‘Though elements of stability returned this month with a small improvement in the sector’s fortunes, both consumers and corporate clients continued to be apathetic about spending on services with a fall in new orders for a fourth consecutive month.

Sales from overseas customers also declined, continuing the trend seen since September 2018, so there was little sign of a boost to business from outside the UK.’

ZAR Exchange Rate Rebound Limited ahead of Next Week’s South African Election

While investors are generally optimistic that next week’s upcoming South African election will end with a win for South Africa President Cyril Ramaphosa’s ANC party, the South African Rand’s appeal has been limited.

For most of the week, investors have been selling the South African Rand due to strength in rivals, as well as concern about global trade.

As the South African Rand is a currency that is often correlated to market risk and trade movement, the currency was unappealing amid last week’s ongoing global trade uncertainties.

US-China trade negotiations continued without any fresh signs of progress and US trade tensions with other nations persist. According to Jacques Potgieter, a lack of influential domestic South African news has meant that these global factors are the most influential lately:

‘In the absence of any local news and volumes we kind of take our cue from international markets,’

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

With Brexit speculation having driven most of last week’s Pound to South African Rand exchange rate movement, any more solid Brexit developments are even more likely to be influential next week.

Markets are eagerly anticipating more solid news on cross-party negotiations, but if the talks are perceived as seeing no progress or as collapsing, investors will be more likely to keep selling the Pound from last week’s highs.

On the other hand though, if there are solid optimistic Brexit developments after all, GBP/ZAR is more likely to sustain last week’s gains and even advance further.

Analysts don’t expect any major surprises in next Wednesday’s South African election, predicting a solid win for the ruling African National Congress (ANC) party.

However, any surprises in the result would certainly influence the South African Rand’s movement.

Surprising figures in South African data next week, such as in Thursday’s March production results, could also cause some movement in the Pound to South African Rand exchange rate.
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