Signs of UK-German Brexit Breakthrough Trigger Sharp GBP/ZAR Exchange Rate Rise

September 5, 2018 – Written by James Fuller

Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Rises 1.9% on Sign of Brexit Breakthrough

The Pound (GBP) has risen sharply against the South African Rand (ZAR) today, in addition to trading higher against most other currency peers.

This recent surge in demand for Sterling has been caused by the latest Brexit developments – Bloomberg has reported that the UK and Germany have agreed to accept a less-detailed Brexit deal, which reduces the risks of a no-deal Brexit.

These are very early days for this latest piece of news, but if officially confirmed it could mean that the UK is on track to meet October’s negotiation deadline after all.

ZAR/GBP Exchange Rate Drops as Recession Confirmed

The South African Rand (ZAR) has been in low demand today, making clear losses against Pound Sterling (GBP) and most other peers due to minimal confidence in the national economy.

In addition to having its credit rating downgraded to ‘junk’ status by several agencies over recent weeks, South Africa has just been hit with the news that it entered a recession in Q2 2018.

Q1 saw a -2.6% drop in South African GDP and while Q2’s -0.7% reading hasn’t been as bad, it has still indicated a technical recession for the country.

This marks a difficult first year for new President Cyril Ramaphosa, who took over from longtime leader Jacob Zuma earlier this year.

There was initial ‘Ramaphoria’ about a potential surge in South African economic growth, but this optimism has gradually faded as disappointing economic announcements have steadily rolled in.

Weekly Pound Sterling to South African Rand Exchange Rate Forecast: Is GBP/ZAR Volatility ahead on Jobs Market Data and BoE Meeting?

The next UK and South African economic data to watch out for isn’t due until the coming week, when high-impact UK trade and jobs market stats will come out ahead of a Bank of England (BoE) monetary policy meeting.

Taking the UK ecostats in order, Pound Sterling could fall against the Rand on Monday if July’s UK trade deficit is reported to have expanded.

Additional losses may come on Tuesday, assuming that the UK unemployment rate in July is reported to have risen from 4% to 4.2% as forecast.

There might be a positive news on Tuesday as well, if July’s UK average earnings figures show a faster pace of wage growth during the month.

The main event next week will come on 13th September, consisting of the Bank of England (BoE) interest rate decision.

BoE policymakers aren’t expected to adjust interest rates from 0.75%, but could still have a significant influence on the GBP/ZAR exchange rate depending on their remarks.

In the ideal scenario for GBP traders, the BoE’s minutes will reveal that policymakers are still optimistic about future UK economic growth, even with the uncertainty of Brexit continuing to loom over future forecasts.

If the outlook is positive then the Pound could appreciate against the South African Rand; on the other hand, signs of concern about economic damage from the Brexit process could lead to GBP/ZAR exchange rate losses.

Next week’s South African news will consist of Tuesday’s manufacturing output stats, followed by retail sales data on Wednesday and mining production readings on Thursday.

Monthly manufacturing production in July is tipped to rise, but an annual slowdown from 0.7% to 0.5% has also been forecast.

The retail sales stats could be more positive overall, with experts predicting growth on the month and the year.

Unfortunately for Rand traders, Thursday’s mining data could cause late-week ZAR/GBP exchange rate losses if it shows forecast-matching slowdowns in activity during July.

Mining activity is a key component of South African economic growth, so any signs of a drop-off in activity could be enough to weaken the Rand.

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TAGS: Pound Rand Forecasts