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GBP to ZAR Exchange Rate Hits 3-Month-Worst despite US-China Trade Jitters

May 16, 2019 - Written by James Fuller

Despite trade tensions between the world’s two biggest economies continuing to worsen, the trade-correlated South African Rand has been surprisingly resilient and the British Pound to South African Rand (GBP/ZAR) exchange rate has simply continued to fall. Market optimism about South Africa’s newly elected government is helping the domestic currency to secure gains.

While the US-China trade jitters have limited the South African Rand’s strength, they have ultimately not been enough to stop GBP/ZAR from falling. Last week saw GBP/ZAR tumble and the pair’s losses continued after a brief rise at the beginning of this week.

GBP/ZAR opened the week at the level of 18.41, and has largely trended with a downside bias since then. GBP/ZAR trends near a three month low of 18.12 at the time of writing today.

GBP Exchange Rates Slump on Rising Brexit and UK Political Fears

Much of Sterling’s recent strength has seemingly evaporated, as the British currency continues to plunge this week, even against relatively weak currencies that would typically be negatively impacted by US-China trade tensions.

Hopes for a cross-party agreed soft Brexit have faded, and instead investors are becoming increasingly anxious ahead of next week’s EU elections, as well as the likelihood that UK Prime Minister Theresa May will step down from her leadership within the next two months.

Prime Minister May’s government is planning to put its Brexit plan to Parliament vote for the fourth time, but analysts predict it will easily be defeated for a fourth time as well.

Amid doubts that there will be any solid path on Brexit before Prime Minister May has to step down at the end of June, concerns are worsening that the next leader could be one that advocates a harder Brexit, or that the clock may run down and lead to a no-deal Brexit.

Analysts have started to say this week that the chances of a no-deal Brexit are rising again.

According to Adam Cole, Head of G-10 Strategy at RBC:

‘We are pricing the risk of no-deal exit back in,’

On top of this, officials have been reminding rebellious backbencher MPs that a change of leadership would not necessarily make it any easier to pass a Brexit deal through Parliament.

Essentially, expectations for long-term Brexit uncertainty and the returning possibility of a no-deal Brexit left the Pound plunging.

ZAR Exchange Rates Rising on Domestic Politics despite Economic Concerns

The South African Rand has been able to sustain gains versus a highly unappealing Pound, thanks largely to developments in South African politics since South Africa President Cyril Ramaphosa maintained power in the latest general election.

South African Rand investors are carefully watching Ramaphosa, considered a business-positive President, for his decisions on the government cabinet. According to Strategists from Morgan Stanley:

‘We are keen to see whether some ministries could be consolidated to give a lower overall number of cabinet posts,

This would be positive for streamlining policy and an indication of Ramaphosa’s growing authority within the ANC.’

As a result of the resilient optimism on Ramaphosa’s new government, the South African Rand has been able to avoid the worst of the market’s latest US-China trade jitters.

GBP/ZAR Exchange Rate Forecast: Political Developments and South African Inflation in Focus

The Pound to South African Rand exchange rate is tumbling, but as US-China trade uncertainties are rising there is still potential for the pair to recover if the South African Rand becomes unappealing.

Investors are still carefully watching for trade developments despite the Rand’s resilience this week. Worse US-China trade relations would certainly be a negative for the South African Rand, due to South Africa’s trade relations with China.

Wayne McCurrie, Portfolio Manager from FNB, said:

‘The market is waiting for direction on two things: the US-China trade war and what President Cyril Ramaphosa is going to do with his cabinet,’

On top of developments in South African politics and US-China trade news though, South African Rand investors are also anticipating next week’s South African inflation and South African Reserve Bank (SARB) policy decision.

This could lead the South African Rand quite volatile, though as EU elections approach next week it could be an influential week for the Pound as well, leaving political news as the primary drive for potential Pound to South African Rand (GBP/ZAR) exchange rate movement.
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