Wednesday’s session saw broad fluctuations in the British Pound to South African Rand (GBP/ZAR) exchange rate, as the latest Brexit developments spooked Pound investors while the South African Rand also plunged, due to the latest South African budget news.
Despite its Wednesday afternoon surge, GBP/ZAR remains lower than the week’s opening levels of 18.87 amid Brexit jitters. On Wednesday morning, GBP/ZAR touched a monthly low of 18.28 before surging on South African budget developments and currently trends near the level of 18.88.
GBP Strength Limited as UK Political Uncertainties Dominate Headlines
While the Pound advanced against the South African Rand on Wednesday, the British currency saw broad weakness against many other major rivals such as the US Dollar (USD).
This was due to the latest Brexit uncertainties, as despite claims from UK Prime Minister Theresa May that a UK-EU Brexit deal was 95% completed there was still no agreement on the issue of Ireland’s border.
In addition, even if a UK-EU deal was agreed any potential deal could still be blocked domestically due to a lack of support for Prime Minister May’s plan from UK MPs.
May’s Brexit plan faces many critics and opponents both within opposition parties and within her own Conservative Party.
While analysts are still hopeful that a Brexit deal will be reached, market and investor optimism is tanking as October draws to an end with no end to negotiations in sight.
According to Valentin Marinov, head of G10 currency strategy at Credit Agricole:
‘Any indication that political risks are on the rise in Westminster could fuel fears about a ‘no-deal’ Brexit and sink the pound,
While we still hope for a last-minute Brexit deal, we maintain a rather cautious stance on the pound for now.’
On top of the latest Brexit uncertainties, investors are also anxious that Prime Minister May could face a leadership challenge due to disappointment among backbenchers about the angle she has taken in Brexit negotiations.
According to Mayank Mishra from Standard Chartered:
‘GBP may trade softer if there’s a leadership challenge, although it’s unlikely that Theresa May loses the challenge,
We believe GBP is pricing considerable risk premium due to Brexit and political uncertainty at this point, suggesting room for upside as these uncertainties fade,’
ZAR Slumps Across Board as South Africa’s Budget Misses Targets
On Wednesday, South Africa’s recently appointed Finance Minister Tito Mboweni delivered the nation’s latest budget speech – and the outcome was concerning for markets.
Mboweni revealed that South Africa’s government debt is now forecast to peak two years later than expected, and higher than expected too.
The disappointing and significant miss in South Africa’s budget targets knocked the South African Rand on Wednesday and was the primary cause for the Pound to South African Rand exchange rate’s afternoon surge.
According to Piotr Matus from Rabobank:
‘The market seems to be disappointed with much higher than previously envisaged budget deficits in coming years, which is a timely reminder of the fiscal challenges South Africa faces as a result of weak economic activity,’
South Africa’s latest monthly inflation rate did beat expectations, but this is unlikely to influence the South African Reserve Bank’s (SARB) outlook notably.
GBP/ZAR Forecast: Further Brexit Developments and Risk-Sentiment in Focus
The Pound to South African Rand exchange rate is unlikely to be driven much by economic data in the coming sessions as market focus will remain on more major factors like politics and global risk-sentiment.
As GBP/ZAR still trends lower than the week’s opening levels despite Wednesday’s disappointing South Africa budget news, the pair could still end the week lower unless risk-sentiment worsens.
As the South African Rand is a risky emerging market currency, it could see further losses in the coming sessions if investors become more risk-averse in some way.
Of course, the Pound to South African Rand exchange rate could see some much sharper movement if there are any surprising developments in Brexit negotiations in the coming sessions.
For example, if UK Prime Minister Theresa May does face a leadership challenge, GBP/ZAR could slump again.
On the other hand, if the UK and EU somehow agree to a resolution to the issue of Ireland’s border, the Pound to South African Rand exchange rate could see stronger gains.
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TAGS: Pound Rand Forecasts