Pound to South African Rand (GBP/ZAR) Exchange Rate Rises despite Disruptive Brexit Fears

July 30, 2018 – Written by Frank Davies

Last week, the Pound to South African Rand exchange rate opened at a level of ZAR17.6225 on Monday and closed down lower at ZAR17.2606 on Friday.

This week-long deterioration was down to growing concerns that the UK could face a ‘no-deal’ Brexit, which might necessitate stockpiling essential supplies due to disrupted supply lines.

Worries about Post-Brexit Financial Sectors Limit GBP/ZAR Exchange Rate Gains

The Pound (GBP) has risen by 0.4% against the South African Rand (ZAR) today, on a quiet start to the week.

The latest UK economic news has limited the GBP/ZAR exchange rate rise, as Pound Sterling traders have been worried about the impacts of Brexit on financial services.

The concern is that if talks go poorly then financial services between the UK and EU may be disrupted, which would be especially bad for the UK given its reliance on the services sector for economic growth.

South African Rand to Pound (ZAR/GBP) Exchange Rate Drops as US Tariffs Risk ZA Upset

The South African Rand (ZAR) has fallen against the Pound (GBP) today, making a moderate loss on concerns about the impact of trade tariffs on the ZA economy.

As the US continues to unsettle global markets by threatening higher tariffs on imports to the country, there is a danger that many nations, South Africa included, will suffer.

South Africa has already been hit by US tariffs on steel and aluminium and there are greater concerns that vehicle tariffs could damage the South African automobile industry.

Outlining the threats which have dragged on ZAR trader confidence today, Capital Economics Africa Economist John Ashbourne says:

‘The country is already suffering due to tariffs on steel and aluminium. And its car industry would also be exposed to higher trade barriers in the US; 10% of its exports go to the country.

‘There isn’t, unfortunately, much that Pretoria can do to reduce the vulnerability of its export-focused sectors.’

Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Volatility Forecast on UK Confidence Stats

The Pound (GBP) is at risk of falling against the South African Rand (ZAR) in the near-future, when a GfK UK consumer confidence reading comes out early on Tuesday.

This measurement previously showed a -9 point reading and is expected to prove similarly negative with a reprint at the same level.

Any negative reading means that a majority of respondents are pessimistic rather than optimistic, so even a slight rise up to -8 or -7 points might not be enough to support the Pound.

On the other side of the currency pairing, the South African Rand might be affected by tomorrow’s Q2 unemployment rate figures and June’s trade balance reading.

A minimal reduction in unemployed persons is forecast, but the shift from 6m to 5.9m might not be enough to affect the current jobless rate of 26.7%.

The later trade balance reading could prove more supportive, if it matches with forecasts and shows a surplus expansion from 3.852bn to 5bn.

Beyond these initial data releases, the economic data that could have the largest impact on the GBP/ZAR exchange rate will be Thursday’s Bank of England (BoE) interest rate decision.

Some economists believe that there is a 91% chance of the UK central bank raising interest rates from 0.5% to 0.75%, which would be a major action from the BoE.

Such a decision could lead to clear GBP/ZAR exchange rate gains, as it would imply that BoE policymakers believe the UK economy is strong enough to handle higher interest rates.

This outcome isn’t guaranteed, however; Hargreaves Lansdown Senior Economist Ben Brettell has warned that despite the high odds:

‘There are plenty of reasons why the Monetary Policy Committee (MPC) would think about waiting and they have disappointed in the past.

‘I would vote to hold rates as I do not see the case for higher rates at the moment particularly with uncertainty around Brexit and no real impetus from domestic inflation.

‘We are seeing imported inflation from oil but domestic inflationary pressures such as wage growth are not concerning.

‘I would want to wait until you see the Q1 growth figure was a blip and the UK economy is on a stronger footing before raising rates.’

In the event of a forecast-disappointing interest rate freeze, the Pound could fall back against the Rand and make late-week losses in the GBP/ZAR pairing.

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TAGS: Pound Rand Forecasts