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GBP to ZAR Exchange Rate Higher despite Rand Rebound amid Brexit Hopes

August 16, 2019 - Written by Tim Boyer

While the South African Rand rebounded slightly from weeks of losses, the British Pound to South African Rand (GBP/ZAR) exchange rate is still on track to sustain gains this week as the Pound has rebounded more strongly. Sterling has benefitted from strong UK data and signs that UK politicians are working to prevent the government from heading for a no-deal Brexit.

After opening the week at the level of 18.34, GBP/ZAR saw broad fluctuations for most of the week. GBP/ZAR largely spent the week trending higher through, even hitting its best level since June at the beginning of the week.

Towards the end of the week, a combination of Pound strength and trade jitters left GBP/ZAR trending higher near the level of 18.50.

GBP Exchange Rates Climbing on UK Data and Brexit Hopes

Following weeks of plunges on worsening no-deal Brexit fears, the Pound finally found some stronger support to trend on last week.

Around the middle of the week, investors opted to buy the British currency back from its cheapest levels in profit-taking, and the rebound was only exacerbated by stronger than expected UK data and the latest Brexit developments.

Britain’s July inflation rate beat expectations, dousing market fears that the Bank of England (BoE) could cut UK interest rates in the foreseeable future.

The perceived resilience of UK consumer activity improved following stronger than expected retail sales data on Thursday as well, which helped to lighten fears of a possible UK recession in the third quarter.

According to Marshall Gittler, Chief Strategist at ACLS Global:

‘This suggests consumer spending is still holding up and still supporting the economy even though overall output contracted in the second quarter,

It ties in with the relatively high wage growth that we saw earlier in the week.’

Towards the end of the week, the Pound also benefitted from fresh speculation that Britain’s opposition parties were ramping up efforts to prevent a no-deal Brexit.

It seemed that many parties were interested in cooperating with the Labour Party’s plan for a no-confidence vote in the Boris Johnson government to prevent a no-deal Brexit.

However, uncertainty remains as the parties are struggling to reach agreements on what exactly should follow a no-confidence vote.

ZAR Exchange Rate Losses Limited despite Expectations for Further Weakness

The Pound was unable to register more solid gains against the South African Rand in recent sessions, as the Rand was also rebounding.

Following weeks of losses on worsening South African economic and political uncertainties, the South African Rand’s losses slowed.

Still, these downside factors persist. The South African Rand has had little reason to advance and has merely been rebounding from lows amid the expectation that there are further losses ahead.

South Africa’s slightly stronger than expected retail sales last week weren’t enough to help the Rand much either. In fact, the relatively risky trade-correlated Rand became even less appealing as US recession fears worsened.

The US yield curve inverted for the first time since 2007, worsening fears that the US could see recession in the coming years.

This also worsened fears of slowing global growth in general, which markets fear could hurt South Africa’s already concerning economic outlook.

GBP/ZAR Exchange Rate Forecast: Politics, Geopolitics and South African Inflation in Focus

Next week’s economic calendar will be a little quieter, but Pound to South African Rand exchange rate investors are more likely to focus on political and geopolitical developments next week regardless.

As the Pound was supported by hopes for Britain’s opposition parties to find a way to prevent no-deal Brexit, the British currency could just as easily tumble again if those hopes unravel.

If Britain’s opposition Labour Party fails to reach any kind of agreement with other parties on a way to push ahead with a no-confidence vote in the government and prevent a no-deal Brexit, then no-deal Brexit fears will bubble up again.

This will be the biggest focus for Pound investors next week, but South African Rand movement will be driven by multiple factors.

The trade-correlated Rand would see stronger demand if US-China trade relations improve or if global growth slowdown fears lighten.

The Pound to South African Rand exchange rate could also face fresh pressure and weaken if Wednesday’s South African inflation data comes in higher than expected.
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