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Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Rallies as PM Accused of Using Suspension to ‘Silence’ MPs

September 17, 2019 - Written by John Cameron

Pound South African Rand (GBP/ZAR) Exchange Rate Rises as Supreme Court Hears Evidence

The Pound Sterling South African Rand (GBP/ZAR) exchange rate rallied, and the pairing is currently trading at around R18.4336.

Sterling jumped against the South African Rand as the UK Supreme Court heard evidence the suspension of parliament was to stop MPs ‘frustrating or damaging’ Boris Johnson’s Brexit plans.

It was argued by lawyers that there was ‘strong evidence’ the Prime Minister saw MPs ‘as an obstacle’ and took action to ‘silence’ them.

Despite his pledge to take the UK out of the European Union by 31 October, Johnson denies that the prorogation of parliament has anything to do with this.

The Prime Minister’s insistence the UK will leave the bloc by the deadline and he will not request an extension saw Sterling s retreat from six-week highs against the US Dollar.

However, subdued risk-appetite among traders offset this, and the GBP/ZAR exchange rate jumped 1.2% on Tuesday afternoon.

South African Rand (ZAR) Slumps Ahead of Fed Rate Decision

The South African Rand slumped on Tuesday as the Chinese central bank resisted the temptation to lower its one-year lending rate.

The risk-sensitive Rand was left under pressure thanks to heightened concerns Chinese policymakers were not doing enough to prevent the slowdown of economic growth.

Added to this, investors were deterred by the rising risk-off mood sparked by this weekend’s attacks on Saudi Arabia’s oil facilities.

Meanwhile, it is likely the upcoming US Federal Reserve interest rate decision left the Rand under pressure as the bank is largely expected to slash rates.

However, there are some divisions within the Fed over the country’s economic outlook as well as how the bank needs to respond to this.

It has been suggested that this could prevent the Federal Reserve from cutting rates for the second time in 2019.

Attacks on Saudi Arabian Oil Facilities Weighs on South African Rand (ZAR)

Tuesday morning saw the South African Rand weaken against the Pound as the attack on Saudi Arabia’s oil facilities continued to dampen risk appetite.

Last week saw an upswing in risk appetite as US-China trade tensions appeared to cool, however, the weekend’s attacks pushed investors toward safe-haven currencies.

In a note, treasury partner at Peregrine Treasury Solutions, Bianca Botes wrote:

‘Market participants will be waiting with bated breath for any Saudi retaliation which could send the recently renewed risk sentiment rapidly down the drain.’

As an oil importer, South Africa will likely be hit by the recent surge in oil prices thanks to Saturday’s attacks.

However, oil prices dropped after a top Saudi Arabian source revealed production could be back online within a matter of weeks.

Pound South African Rand Outlook: Will Weak Inflation Weigh on ZAR?

Looking ahead to Tuesday, the South African Rand (ZAR) could continue to slide against the Pound (GBP) following the release of South African inflation data.

If August’s Consumer Price Index (CPI) does not rise as high as expected, the Rand could slump further.

Meanwhile, August’s UK inflation data could buoy Sterling.

The Pound South African Rand (GBP/ZAR) exchange rate is likely to rise if the UK Consumer Price Index (CPI) continues to stay within the Bank of England’s (BoE) target range.

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