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GBP to ZAR Exchange Rate Plunges as Markets React to Sudden US Trade Tariff Delay

August 13, 2019 - Written by Ben Hughes

Could the South African Rand’s downward trend have come to an end for now? The British Pound to South African Rand (GBP/ZAR) exchange rate plunged on Tuesday afternoon as investors reacted to surprise optimistic developments in the US-China trade war. The Pound was unable to benefit from the morning’s UK job data, making it easier for the trade-correlated South African Rand to surge.

Despite the Pound’s own weakness on no-deal Brexit and recession fears, GBP/ZAR still climbed from 17.97 to 18.34 last week due to a bearish South African Rand. Yesterday, GBP/ZAR continued its advance and touched on 18.67 – its best level in almost two months.

This afternoon though, the South African Rand saw a strong rebound as investors digested the latest US-China trade war news, leaving GBP/ZAR plunging. At the time of writing, GBP/ZAR was trending near the level of 18.29 – below the week’s opening levels.

GBP Exchange Rates Fail to Capitalise on UK Jobs Report amid Signs of Weakness and Brexit Uncertainty

No-deal Brexit fears are showing no signs of notably abating any time soon, and this is keeping pressure on the Pound outlook following weeks of significant losses.

While the Pound rebounded slightly from its cheapest levels in profit taking yesterday, its rebound was short-lived and today’s data did little to help the British currency continue its climb or sustain any further gains.

This morning saw the publication of Britain’s latest job market results, which were rather mixed overall.

UK wage growth unexpectedly hit its best levels in a decade at 3.9%, and Britain’s job market continued to add a strong number of new jobs.

However, Britain’s key unemployment rate unexpectedly worsened. On top of this, some analysts argued that the UK job market may have peaked. According to Tej Parikh, Chief Economist at the Institute of Directors:

‘While competition has pushed up salaries, thin margins and low productivity may set a ceiling for pay growth. Although vacancies remain high by historic standards, the number has been dropping since the start of the year.

Impressive jobs market data should not lull policymakers into a false sense of confidence. As it becomes harder to find talent, businesses will need better access to training courses and a flexible immigration system to meet their skill needs.’

With the data failing to offer the Pound much in the way of fresh support, the resurging South African Rand was able to more easily climb against a weaker Sterling this afternoon.

ZAR Exchange Rates Surge on Surprise Delay to US-China Trade Tariffs

After weeks of tumbling on rising South African political and economic uncertainties, combined with global trade fears, the South African Rand finally saw some respite this afternoon.

The South African Rand is a currency that is often correlated with trade and risk-sentiment. As a result, recent rising fears of a prolonged US-China trade war or even a currency war have made investors hesitant to buy it.

South African political jitters amid a campaign donation investigation into South Africa’s President, Cyril Ramaphosa, as well as fears that South Africa’s Moody’s credit rating could be downgraded, also weighed on the Rand.

However, the Rand saw a surge in demand in response to today’s news that the US planned to delay tariffs on US imports of some Chinese goods.

US President Donald Trump’s administration announced that many holiday shopping items, such as phones and toys, would avoid the 10% tariffs planned to be implemented in September. The tariffs on these items were delayed until mid-December.

It came as the US and China held talks for the first time since the recent rise in tensions and currency war fears. Assets correlated to trade rose in response to the news, including stocks and commodities.

GBP/ZAR Exchange Rate Forecast: Retail Sales Results Could Cause Shift in Movement

The South African Rand is being supported by higher market demand for trade and risk-correlated currencies today, but unless US-China trade relations continue to improve, the rebound may be limited.

This means that South Africa’s domestic concerns could make it easier for GBP/ZAR to recover its recent losses. As a result, investors are anticipating tomorrow’s datasets.

Britain’s July inflation rate will be published tomorrow, which could soften Bank of England (BoE) easing speculation and boost the Pound if it impresses.

South African Rand investors will be anticipating tomorrow’s South African retail sales stats from June. If they beat forecasts, the South African Rand could see stronger domestic support and would be more likely to sustain gains.

Britain’s own retail sales stats, due on Thursday, could also be particularly influential if they surprise investors. Worse than expected UK retail stats, for example, could worsen UK recession fears and lead to even deeper GBP/ZAR losses.
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