Pound South African Rand (GBP/ZAR) Exchange Rate Rallies on UK Election Optimism

December 5, 2019 - Written by John Cameron

STORY LINK Pound South African Rand (GBP/ZAR) Exchange Rate Rallies on UK Election Optimism

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Reaches One-Month High

The Pound Sterling South African Rand (GBP/ZAR) exchange rate rallied on Thursday morning as UK election optimism increased. The pairing is currently trading at around R19.2307.

The Pound was provided with a further boost as optimism the Conservative Party would win next week’s general election increased.

Markets have largely priced in a Tory majority, which they believe would mean the end of over three years of Brexit uncertainty that has weighed on the economy.

This sparked the pairing to rise to its highest level since the start of November.

Several opinion polls this week have shown Boris Johnson’s Conservative Party is ahead of Labour, buoying GBP.

Commenting on this, in a note to clients, Deutsche Bank’s Jim Reid wrote:

‘Sterling has been supported by investor hopes that a Conservative majority at the election will support a smooth ratification of the Withdrawal Agreement through Parliament, taking away some of the short-term uncertainty over the Brexit process.

‘The sole poll yesterday came last night and showed a 10pt lead for the Tories - unchanged from the previous poll and in-line with the poll of polls.’

South African Rand (ZAR) Falls on Surprise Q3 GDP Contraction

The South African Rand fell on Thursday after a slew of disappointing data revealed the country’s economy was continuing to struggle after Q3 data showed a surprise contraction.

On Tuesday, South African growth contracted by -0.6% in the three months to September, which raised further concerns the country would lose its last investment grade credit rating.

Meanwhile, data from the South African Reserve Bank (SARB) showed the current account deficit was slightly narrower but remained large.

Added to this, business confidence showed firms we struggling amidst tough economic climate and weaker demand.

However, the survey revealed confidence recovered slightly in November, edging up to 92.7 from the previous month’s 91.7.

In a statement, the South African Chamber of Commerce and Industry (SACCI) said:

‘The increase in the BCI [Business Confidence Index] in November must be repeated in the months to come to have a lasting effect on business confidence level.’

US-China Optimism Buoys Risk Appetite

Optimism that the US and China will reach a ‘phase one’ trade deal prevented the risk-sensitive South African Rand from plummeting further against Sterling.

While the Rand was unable to rise against GBP, the optimism likely prevented further losses.

Despite mixed signals from earlier in the week, markets remained optimistic a deal will be secured, which buoyed risk appetite.

Pound South African Rand Outlook: Will GBP Extend Thursday's Gains?

Looking ahead, it is likely the Pound (GBP) will extend its gains against the South African Rand (ZAR) if election optimism increases.

If further polls show the Conservatives have extended their lead over opposition parties, Sterling sentiment will rise.

Meanwhile, the South African Rand could suffer losses if reports reveal tensions between the US and China have increased once again.

If reports show tensions between Washington and Beijing have flared up once again, the Pound South African Rand (GBP/ZAR) exchange rate will rise.

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TAGS: Pound Rand Forecasts