GBP to ZAR Exchange Rate Surges as South African Growth Unexpectedly Contracts in Q3

December 3, 2019 – Written by James Fuller

After sliding throughout yesterday’s session and touching lows not seen in almost a month, the British Pound to South African Rand (GBP/ZAR) exchange rate rebounded this morning and saw a surge in demand. This has been due to both a surprisingly good UK poll for the ruling Conservative Party, as well as some highly concerning developments in South Africa’s economic outlook and the US-China trade war.

Due to UK election hopes, GBP/ZAR climbed from 18.88 to 18.95 last week, but some resilience in the South African Rand meant that the pair was unable to hold the highs of 19.12 seen later in the week.

When markets opened this week, GBP/ZAR tumbled and touched on a three week worst level of 18.80 early this morning. GBP/ZAR has since seen a strong rebound due to today’s economic and political developments, and at the time of writing is trending higher in the region of 18.99.

GBP Exchange Rates Firm as UK Election Polls Still Show Strong Lead for Conservatives

With just about a week and two days until Britain’s 2019 General Election takes place, Pound movement has become increasingly focused on UK election polls and speculation.

Last week’s major seat-by-seat ‘MRP’ poll showing that the Conservative Party would win a comfortable majority in the election was responsible for strong Pound movement throughout last week.

Multiple recent UK election polls showed that Britain’s opposition Labour Party could be narrowing the gap on the ruling Conservatives, worsening concerns about the possibility of a hung Parliament outcome.

While this caused some Pound movement yesterday though, some polls published since yesterday have indicated that polling remains steady, with one poll even showing the Conservatives extending a lead over Labour.

A new poll from Kantar showed the Conservatives extending a lead slightly to 12 points. According to Lee Hardman, Currency Strategist at MUFG London:

‘The fresh poll results is pushing the Pound higher with the Dollar’s weakness also playing a part’

The data boosted hopes that the ruling Conservative Party could win a comfortable majority in next Thursday’s UK election.

Investors perceive this as being the best chance of avoiding a worst-case scenario no-deal Brexit and boosting the chances of the Conservative Party passing its soft Brexit plans.

ZAR Exchange Rates Plunge as South African Growth Shows Shock Contraction

Most of last week saw the South African Rand performing fairly solidly on a combination of trade fears and hopes for South African economic recovery, but this week is off to a bearish start for the currency.

The South African Rand, which is correlated to trade and emerging market movement, was already under pressure yesterday amid rising concerns that US-China trade relations could worsen.

As a result, the currency was knocked hard today as domestic South African data disappointed and US-China trade war fears returned.

South Africa’s Q3 Gross Domestic Product (GDP) growth rate was expected to slow to 0.1% in Q3, but instead the figure slumped from 3.2% to an unexpected contraction of -0.6%

The yearly growth rate slowed to just 0.1% rather than the expected 0.4%. The data worsened concerns that Moody’s, the last credit ratings agency to give South Africa an investment grade, could downgrade South Africa’s credit rating in its review next March.

According to Reezwana Sumad, Economist at Nedbank:

‘These numbers certainly do support the notion of a downgrade by Moody’s in 2020,

In a political environment where it is difficult to cut government wages you could see treasury forced to raise wealth and personal taxes, and that’s something it doesn’t want to do.’

On top of South African economic concerns worsening, demand for the trade and emerging market-correlated currency worsened as the US-China trade war appeared to be on the cusp of escalating again.

GBP/ZAR Exchange Rate Forecast: UK Election Polls see Increased Focus Ahead of Election

Britain’s highly anticipated 2019 General Election will be held on the 12th of December, just a week and two days from now. As a result, GBP/ZAR investors are likely to become more and more focused on UK election polling as the date draws closer.

Typically influential UK services data will be published tomorrow, but amid the Pound’s election focus and a lack of major South African ecostats due for publication over the coming week, GBP/ZAR will be driven more by political and trade developments.

Developments in the US-China trade war and tensions are most likely to drive market moods regarding trade and emerging market correlated currencies.

If US-China relations are able to recover from Trump’s comments today, trade sentiment will improve and this could keep pressure on GBP/ZAR.

Failing that, some upcoming South African standard bank PMI data tomorrow, as well as current account data on Thursday, could cause some South African Rand and Pound to Rand exchange rate movement.

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TAGS: Pound Rand Forecasts