May 10, 2019 - Written by David Woodsmith
STORY LINK GBP to ZAR Exchange Rate Sheds Last Week’s Gains as South Africa’s Ruling ANC has Election Win in Sights
Despite fresh global trade fears hitting market demand for risk-correlated currencies like the South African Rand, the British Pound to South African Rand (GBP/ZAR) exchange rate has still seen significant losses over the past week and has shed essentially all the gains seen a week earlier. This has been due to Rand investors hoping for stability following the latest South African general election.
After opening this week at the level of 18.89, GBP/ZAR briefly surged to a fresh one month high of 19.07 on Monday before spending the rest of the week tumbling. GBP/ZAR ultimately saw significant losses that mirrored the gains seen the previous week, and at the time of writing was trending near the level of 18.49.
This was lower than last week’s opening levels of 18.56.
While most of the week’s losses were due to the Pound’s broad weakness on fresh doubts of a soft Brexit deal, the South African Rand avoided market risk-aversion throughout the week and was able to capitalise on the Pound’s selloff to push GBP/ZAR lower.
GBP Exchange Rates Slump as Brexit Hopes Replaced with Uncertainty Once More
The Pound saw a surge in demand at the beginning of May, as investors reacted bullishly to a positive tone from UK officials regarding cross-party Brexit negotiations.
However, while hopes that a soft Brexit solution could be reached briefly caused a Sterling surge, the Pound quickly unravelled those gains once doubt set in again.
This week, officials have become more negative on talks again, instead increasingly prioritising the EU elections coming up in a few weeks.
The new populist Brexit Party has been surging in EU election polls, causing concern among the ruling Conservative Party, as well as among analysts, that Britain is in for more political uncertainty.
As hopes for a Brexit solution any time soon fade and investors begin to expect months of uncertainty for Britain’s economic outlook, the latest UK data has done little to make the Pound more appealing.
UK growth data met forecasts today, and while industrial and manufacturing production beat expectations analysts said it was likely due to Brexit preparation.
According to Tej Parikh, Senior Economist at the Institute of Directors:
‘Some businesses brought activity forward early this year in preparation for leaving the EU, so higher stocks and earlier orders have artificially bumped up the growth numbers.
In the second quarter many firms will be keen to run down their Brexit caches, which will drag on economic growth.’
ZAR Exchange Rates Firm on Hopes for South African Political Stability
Hopes that political stability in South Africa would improve going forward supported the South African Rand over the past week, and helped it to recover its recent losses versus Sterling despite the fresh market trade uncertainty.
As was widely expected, South Africa’s ruling African National Congress (ANC) looks set to comfortably win South Africa’s 2019 election as vote counting draws on today.
However, as was also expected, a far smaller chunk of the population voted for ANC than in past elections, keeping investors anxious about the long-term health of the party.
For now, investors are relieved that the party’s win means the pro-business and anti-corruption angle taken by South African President Cyril Ramaphosa will continue.
Analysts note though, that markets will also be watching how the government proceeds. According to Bianca Botes, Corporate Treasury Manager at Botes Perengrine Treasury Solutions:
‘As the ANC win is digested, markets will swiftly shift their focus to the subsequent actions of the ruling party, including the announcement of cabinet ... as well as policies relating to expropriation of land without compensation,’
Overall though, the news was enough to keep the South African Rand bullish, despite other risk and trade-correlated currencies being hit by fresh US-China trade tensions in recent sessions.
GBP/ZAR Exchange Rate Forecast: Political Developments and Job Reports in Focus
Next week is looking similar for the Pound and South African Rand, as typically influential UK and South African job market data will be published, but both currencies are more likely to be moved by potential political developments.
For the Pound, the biggest focus for investors will be UK political uncertainty, as well as the possibility of any surprise Brexit developments.
The UK government is planning a fourth meaningful Parliament vote on its Brexit plan, which has been blocked by Parliament three times already. This vote may not take place until later in the month, potentially putting it closer to the upcoming EU elections.
With the EU elections drawing nearer, headlines will increasingly focus on how these may unfold and how they may impact UK politics.
If investors remain concerned about the ruling Conservative Party shedding support, the Pound could be hit by fresh political uncertainty and fall further.
The South African Rand, on the other hand, will be influenced by continued developments regarding the new African National Congress (ANC) government, and other news following the election.
International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way,
ensuring you get the best exchange rates on your currency requirements.
TAGS: Pound Rand Forecasts