GBP to ZAR Exchange Rate Struggles to Hold Gains as Risk Sentiment Returns

January 8, 2020 – Written by Tim Boyer

Despite UK data being generally supportive and South African data being weak, the British Pound to South African Rand (GBP/ZAR) exchange rate has fallen back from weekly highs today and is struggling to continue trending with an upside bias. The Pound is seeing mixed demand as uncertainty worsens over the Brexit transition period, while the South African Rand benefits from signs that market moods over US-Iran tensions are cooling for now.

Following last week’s impressive GBP/ZAR surge from 18.35 to 18.71, GBP/ZAR spent the first half of this week trending with an upside bias as well.

Overnight, GBP/ZAR briefly touched on a half month best of 18.93 – before shedding all those gains this morning and touching on a new weekly low earlier.

At the time of writing on Wednesday afternoon, GBP/ZAR is trending near the level of 18.68 – below the week’s opening levels again.

GBP Exchange Rates under Pressure as EU Officials Signal that Full Brexit Deal Unlikely

Earlier today, the Pound was seeing stronger demand.

The British currency was supported by this week’s better than expected UK data, including this morning’s higher than forecast labour productivity results. Hopes for the current phase of Brexit to conclude smoothly also helped Sterling.

The UK government’s Brexit plan will return to Parliament vote and analysts expect it will easily pass into law by the end of January, preventing a no-deal Brexit and leading to the Brexit transition period.

However, in the afternoon the Pound’s strength ran out of steam and the British currency saw weaker performance as Brexit concerns worsened.

The UK government reiterated that it would not extend the Brexit transition period. European Commission President Ursula von der Leyen said later that the UK government’s strict deadlines made a full UK-EU Brexit deal impossible.

On Wednesday, Von der Leyen said:

‘The more divergence there is the more distant the partnership has to be,

Without an extension of the transition period beyond 2020, you cannot expect to agree on every single aspect of our new partnership.

Without the freedom of movement of people, you cannot have the free movement of capital, goods and services. Without a level playing field on environment, labour, taxation and state aid, you cannot have highest-quality access to the world’s largest single market.’

ZAR Exchange Rates Rebounding as Market Panic over US-Iran Tension Calms

At the end of last week, global markets were shocked as the US killed a top Iranian military official in an air strike. Qassem Soleimani was the second highest ranked official in Iran, and analysts feared his death could spark considerable conflict between the US and Iran.

It led to broad weakness in risk-correlated currencies like the South African Rand. Soaring prices of oil also weighed on the Rand, as South Africa is an oil-importing nation.

As a result, today’s calming market mood helped to support a rebound in the Rand.

Iran attacked Iraq bases that housed US troops in a show of retaliation that the nation called ‘proportionate measures’. It was also reported that Iran warned Iraq of the attack beforehand, boosting hopes that things would not escalate further.

Still, while the market mood calmed slightly and oil prices fell back from highs as well, the South African Rand’s gains were limited slightly by domestic factors.

South Africa’s recent ecostats have been underwhelming, keeping investors anxious about the nation’s economic outlook. According ABSA, which compiled today’s weaker than expected South African manufacturing report:

‘Bouts of load shedding (power cuts) and persistent weak domestic demand coupled with more intense headwinds from the global economy likely weighed on activity during the year,’

GBP/ZAR Exchange Rate Forecast: South African Manufacturing Results Ahead

South Africa’s domestic outlook could continue to influence the South African Rand’s movement in the coming days, as some notable ecostats will be published tomorrow.

South African manufacturing production and business confidence data could offer the Rand some stronger support if it beats expectations.

As for UK news, Thursday will see Bank of England (BoE) Governor Mark Carney hold a speech.

If Carney takes a shift in tone tomorrow, or if the UK Parliament vote on Brexit sees an unexpected development, the Pound could be strongly influenced.

In fact, as GBP/ZAR has been influenced mostly by political news this week so far, Brexit news and potential changes in global risk sentiment are the most likely to influence the pair in the coming sessions.

The Pound to South African Rand exchange rate would weaken further if US-Iran tensions continue to cool, for example.

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TAGS: Pound Rand Forecasts