Despite a lack of notable South African data this week, the South African Rand has seen a generally strong performance due to the global market outlook and this has helped it to easily capitalise against a broadly weak Pound, pushing the British Pound to South African Rand (GBP/ZAR) exchange rate to its worst levels in months. The biggest news of the week was returning hard Brexit fears throttling the Pound, but South African Rand investors were also more optimistic about the outlook.
South African Rand resilience limited GBP/ZAR gains last week, and this week has caused significant losses. GBP/ZAR opened the week at the level of 19.36 and spent the week plummeting. GBP/ZAR currently trends closely above this week’s low of 18.47 – which was the worst level for the pair in over three months since September.
Amid a lack of major ecostats due for publication over the festive period next week, the Pound will be driven by Brexit developments while global market sentiment will influence the Rand.
GBP Exchange Rates See Limited Support despite UK Growth Beating Forecasts
Following a highly bullish week for the Pound on UK General Election and softer Brexit hopes, the past week has seen even sharper movement from the Pound in the form of losses.
Softer Brexit hopes have taken a significant hit, as the new UK government indicated that it would prioritise breaking from the EU as soon as possible over finding a good UK-EU deal.
It led to a fresh surge in fears that Britain’s economy could see a cliff-edge scenario at the end of 2020. This was the primary cause of the Pound’s significant losses throughout the week, the week’s Bank of England (BoE) news ultimately had little impact on Sterling.
Friday’s UK data did help the Pound to rebound from lows slightly before markets closed for the week, but its impact on the Pound’s strength was still limited overall.
Britain’s Q3 2019 growth rate report beat projections in both quarterly and yearly prints, boosting Pound demand just slightly.
However, analysts continue to warn that Brexit uncertainty is expected to persist through next year, which limited the Pound’s potential for gains. According to Andrew Wishart, UK Economist at Capital Economics:
‘The festive cheer will probably be short-lived seeing as [the upgrade] was driven by a larger boost to net trade than in the previous figures which we know has already started to unwind. The underlying picture is still that there is very little momentum in the economy.’
ZAR Exchange Rates Hold Ground after Week of Strong Performance
Despite a lack of notable South African data published over the past week, the South African Rand has seen solid demand and continued resilience in the currency is helping it to hold gains against a weak Pound.
For much of the week, the risk and trade-correlated South African Rand benefitted from signs of recovery in the global economic outlook.
The US-China ‘phase one’ trade deal, as well as fresh signs of resilience in economies like the Eurozone and Canada, are making investors more optimistic about the economic outlooks of other economies like South Africa as well.
The South African Rand is a high yielding currency, leaving it appealing in times of global market conrfidence. According to a note from ETM Analytics:
‘In this context South Africa’s high yields seem to be driving some outperformance in the spot markets as carry traders seem to be capitalising in the short term’
In terms of South Africa’s domestic outlook, news that credit ratings agency Fitch had left South Africa’s credit rating untouched this week boosted optimism slightly and helped the Rand to firm near recent highs.
GBP/ZAR Exchange Rate Forecast: Political Developments in Focus amid Quieter Economic Calendar
This week’s UK economic data has given the Pound a little support, but not enough to overshadow the week’s significant political developments.
As Brexit developments caused Pound shocks and sharp movements throughout the week, while the South African Rand was supported by the global outlook, political and geopolitical news is likely to remain in focus for the Pound to South African Rand exchange rate next week.
UK finance mortgage approvals and South African trade balance data, due next Friday, may cause some movement, but otherwise markets will be quieter in terms of economic news amid the festive period.
Reaction to today’s UK Parliament decisions on the government’s Brexit plans could inspire Pound reactions over the coming sessions.
If Parliament passes a bill dimming the chances of the Brexit transition period being extended, the Pound could see fresh losses.
The Pound to South African Rand exchange rate could also be influenced by US-China trade developments and other signs of global economic health.
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TAGS: South African Rand Forecasts