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GBP to ZAR Exchange Rate Tumbles on Fresh General Election Jitters

October 22, 2019 - Written by Frank Davies

Despite a lack of strong support for the South African Rand, a combination of trade sentiment and Brexit developments left the British Pound to South African Rand (GBP/ZAR) exchange rate much weaker this afternoon. Fresh speculation that the UK government’s Brexit plans could be blocked and lead to a relatively long Brexit delay, as well as a general election, threw fresh uncertainty into markets and hit the Pound.

Has the Pound’s recent strong streak come to an end? After an impressive surge from 18.69 to 19.16 last week, GBP/ZAR has fallen back notably today.

Since hitting a 7 month high of 19.25 last week, GBP/ZAR has seen weaker performance and has been tumbling today on UK political jitters.

At the time of writing on Tuesday afternoon, GBP/ZAR was trending over 1.0% lower on the day and was trending at around the level of 18.95. This was the lowest point for the pair since the Pound’s surge in demand last week.

GBP Exchange Rates Slump as General Election Fears Flare Up

While Brexit speculation and the possibility of a softer Brexit being passed have dominated the Pound’s movement for most of the week so far, investors were spooked today by fresh general election speculation.

UK Prime Minister Boris Johnson is attempting to push his newly negotiated UK-EU Brexit deal through parliament, but objections to his plans could lead to a fresh Brexit delay.

Johnson’s attempt at a meaningful vote was rejected on Tuesday, and Johnson’s government has indicated that if its attempt to fast-track the Brexit deal fails it will pull the timetable and instead begin preparing for a general election.

Speaking in parliament, Boris Johnson said:

‘ If parliament refuses to allow Brexit to happen and instead gets its way and decided to delay everything until January or possibly longer, in those circumstances [the government cannot] continue with this ... I must say that the bill will have to be pulled and we will have to go forward to a general election’

Amid these reports, speculation that Brexit could soon be delayed until the 31st of January, and that a UK general election could happen in the coming months, weighed heavily on the Pound.

Some analysts noted that Sterling’s fall was also due to its recent highs meaning there was more downside risk. According to Lee Hardman, Strategist at MUFG:

‘(The report) has made the market wary that it could see an increase in uncertainty if we head towards an election,’

ZAR Exchange Rates Benefit from Market Trade and Geopolitical Optimism

While Brexit uncertainties have worsened and UK general election jitters are rising, the South African Rand has been benefitting from other political developments today.

The South African Rand is a currency often correlated to trade and risk sentiment.

As a result, market optimism towards US-China trade relations, as well as indication that a truce between Turkey and Syria could be extended, supported the risk-correlated Rand.

According to Lukman Otunuga, Senior Research Analyst at FXTM:

‘There is a mood of optimism and hope across financial markets on Tuesday morning thanks to upbeat comments from President Donald Trump regarding the progress of trade talks with China,’

Still, the South African Rand’s appeal has been limited as well.

The Rand has benefitted from Pound weakness and risk-sentiment, but investors remain anxious about South Africa’s economic outlook amid a continued energy crisis, as well as an upcoming credit rating review from Moody’s in early November.

GBP/ZAR Exchange Rate Forecast: Brexit Developments and South African Inflation to Drive Movement

With just over a week until the current 31st of October Brexit date, all market eyes are currently on UK politics for how the Brexit process may unfold in the coming days.

If UK Prime Minister Boris Johnson is able to push his Brexit plan through parliament, Sterling will be in for a surge in demand as no-deal Brexit fears are replaced with expectations for a relatively soft outcome to Brexit.

However, if Johnson’s plan is met with more obstacles or is blocked, the Pound could plunge as markets bet on a longer Brexit delay, as well as the possibility of a general election in the coming month or so.

While Brexit developments will dominate the Pound’s movement, the South African Rand will be driven by global geopolitics and trade news.

Tomorrow’s South African inflation rate data from September could influence the Pound to South African Rand exchange rate as well.
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