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GBP to ZAR Exchange Rate Near Yearly Worst after Failing to Recover from No-Deal Brexit Inspired Plummet

July 30, 2019 - Written by Frank Davies

Following months of controversy and a recently unveiled government bailout program for South Africa’s embattled energy firm Eskom, the company’s latest financials were published today and helped to keep pressure on the British Pound to South African Rand (GBP/ZAR) exchange rate following yesterday’s board plummet. Sterling remains highly unappealing as no-deal Brexit fears dominate the outlook.

Last week saw the South African Rand’s rally come to an end and the Pound rebounded, so GBP/ZAR surged from 17.42 to 17.70 throughout the week.

This week though, GBP/ZAR has already shed all of last week’s gains due to the Pound’s Brexit-inspired plummet yesterday. GBP/ZAR even touched on its worst level since May 2018 overnight, 17.17, before rebounding slightly and trending closer to the level of 17.25 at the timed of writing.

GBP Exchange Rates Struggle to Recover as No-Deal Brexit Fears Dominate Outlook

This week’s most significant movement has been caused by sharp movements in the Pound, as the British currency’s volatility deepens in reaction to rising market uncertainty and fear over how the Brexit process will unfold in the coming months.

Britain’s Conservative Party leadership contest finally came to an end last week, and new Prime Minister Boris Johnson and his government came into power. This lightened political uncertainty and led to some Pound gains.

However, all of the Pound’s strength from last week evaporated since markets opened this week.

Investors sold the Brutish currency en masse on Monday, in reaction to comments from Johnson and his government officials indicating that his government was increasingly aiming towards a no-deal Brexit.

Johnson has indicated that unless the EU allows a renegotiation of the UK-EU Brexit withdrawal agreement, his government will prepare for a no-deal Brexit.

According to Peter Dixon, Senior Economist at Commerzbank:

‘For all the words of warning from politicians, economists and central bankers of the dangers of a no-deal Brexit, the market judgement comes as a brutal reminder that investors are not prepared to take politicians on trust and that the balance of risks is clearly tilted to the downside.

The Pound is unlikely to remain at current levels for long: Either the government delivers a no-deal Brexit, in which case Sterling might be expected to fall much further, or this prospect is avoided in which case the currency retraces some lost ground.’

ZAR Exchange Rates Firm as Investors Digest Eskom Losses

South Africa’s state-owned energy firm, Eskom, has had a very difficult 2019 so far. Eskom generates 95% of South Africa’s electricity.

Energy outages across the nation due to capacity constraints and other controversies have left the group as one of South Africa’s major economic concerns of recent months.

A recently unveiled bailout plan for Eskom from South Africa’s government has even seen mixed reaction from markets.

Analysts have said that the bailout plan will not be enough to help Eskom’s long-term sustainability to recover. On top of this, credit rating agency Moody’s said the bailout plan was credit-negative for South Africa.
As a result though, Tuesday’s news that Eskom’s latest yearly losses were not as deep as expected came as a relief to many investors.

The results showed a record annual loss of ZAR20.7b, but previous estimates had sat at over ZAR25b.

The South African Rand saw slightly stronger demand following the report, which helped it to regain some earlier losses. However, ultimately the Rand’s movement was narrow compared to the Pound’s worsening volatility.

GBP/ZAR Exchange Rate Forecast: South African Trade and Central Bank News Ahead

The Pound to South African Rand exchange rate is likely to remain under pressure in the coming sessions, and unless the Brexit outlook changes somehow the pair’s potential for gains will be limited.

Still, the South African Rand may be more notably influenced by news over the coming days, amid upcoming South African data.

Wednesday will see the publication of South Africa’s June trade balance report, followed by South Africa’s July manufacturing PMI on Thursday.

If these stats beat expectations, they could bolster hopes of recovering South African economic activity and the South African Rand could strengthen.

The Rand would be even more likely to strengthen if the Federal Reserve takes a more dovish than expected stance on US monetary policy during its policy decision tomorrow.

Speaking of Central Bank news, Thursday’s Bank of England (BoE) policy decision could also influence the Pound to South African Rand exchange rate if it surprises investors.
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