August 12, 2019 - Written by James Fuller
STORY LINK GBP to ZAR Exchange Rate Near Two Month Best as South African Politics Weigh
Despite deepening concerns of a possible no-deal Brexit, as well as continued speculation that Britain’s economy could see a recession in the coming months, the British Pound to South African Rand (GBP/ZAR) exchange rate has surged today. The pair continues to climb on broad South African Rand weakness, as the Rand is throttled by South African political uncertainties and economic concerns.
The Pound’s own broad weakness in Brexit and recession fears failed to hold it back from gaining against the Rand last week. GBP/ZAR opened last week at the level of 17.97 and climbed throughout the week, closing near the level of 18.35.
This week so far, GBP/ZAR’s climb has only continued. GBP/ZAR has surged today as the Pound rebounds from last week’s weakness, and it has easily benefitted from weakness in the Rand.
At the time of writing, GBP/ZAR was trending close to highs of 18.67. This was the best level for GBP/ZAR since the 14th of June, almost two months ago.
GBP Exchange Rates Rebound from Week of Poor Performance
While the Pound continued to climb versus a weaker South African Rand last week, its gains were limited by its own broad weakness.
Throughout last week, investors sold the Pound as no-deal Brexit fears worsened. Sterling was even less appealing on Friday, when the latest UK growth data showed that Britain’s economy saw an unexpected contraction in Q2 2019.
Today though, investors bought the Brexit-battered Pound back from its cheapest levels in profit-taking. It was able to sustain more gains due to weakness in the South African Rand.
Sterling was also supported by speculation that Britain’s opposition parties were plotting ways to block a no-deal Brexit when Parliament returns from recess next month,
However, this speculation has also caused UK Prime Minister Boris Johnson’s government to begin preparing for a critical day in its plans to either pressure the EU to agree to demands, or push through a no-dal Brexit.
UK government sources now claim that EU officials believe its no-deal Brexit threats. According to one source:
‘What has landed is that the EU now understands that we mean it when we say that,
It is significant that, for the first time, they do get that – but the EU is watching and waiting to see what happens in September and what MPs do to try to stop it.’
ZAR Exchange Rates Continue to Tumble as Political Jitters Weigh
After seeing strong performance for much of 2019 so far, the South African Rand started to tumble in mid-July.
The political and economic uncertainties piling on the currency’s outlook continued to build, making the currency fall even against the broadly weak Pound.
South African President Cyril Ramaphosa has been caught up in a corruption case amid claims that he had misled Parliament about leadership campaign donations.
On top of this, South Africa’s state-owned energy firm Eskom continues to face struggles, and credit ratings agencies have been taking more negative stances on South Africa’s economy.
Amid the weeks of significant losses since mid-July, some analysts noted that the Rand has been the worst performing currency globally. According to Warrick Butler, Chief Trader at Standard Bank:
‘Volatility has of course picked up massively over the last three weeks and the rand is now officially the worst performing currency globally since this mess started in the middle of July.’
GBP/ZAR Exchange Rate Forecast: Sterling Could Shed Gains if UK Data Disappoints
While Brexit fears remain a significant cloud hanging over the Pound outlook, GBP/ZAR has been climbing regardless due to political and economic uncertainties in South Africa lately.
However, with the likelihood of a no-deal Brexit still perceived as rising, the Pound has the potential to shed some of its recent gains against the South African Rand if upcoming UK data disappoints and piles up downside pressure on Sterling.
Tomorrow will see the publication of Britain’s latest job market data, followed by July inflation rate figures on Wednesday and retail sales on Thursday.
If these stats disappoint investors, they could deepen fears that Britain could be headed for a recession.
Any data that indicates that Britain’s economy could contract in Q3 will worsen these fears, and will lead to Bank of England (BoE)
easing speculation as well.
The South African Rand will continue to be influenced by South African political jitters, but Wednesday’s South African retail sales stats could cause movement as well.
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TAGS: Pound Rand Forecasts