Mugabe Resigns, South African Exchange Rates Gain and GBP/ZAR Falls

GBP/ZAR Exchange Rate Down before Budget as Robert Mugabe Steps Down as President of Zimbabwe

After 37 long years and countless controversies, President Robert Mugabe resigned as President of Zimbabwe.

Former Vice-President Emmerson Mnangagwa expected to take over the position, and the potential repercussions of the political upheaval on neighbouring South Africa have left the South African Rand (ZAR) volatile.

Currently the Rand is trading over 0.4% higher against both the Pound and US Dollar.

The GBP/ZAR exchange rate could experience further volatility today in response to South Africa’s inflation data and the UK’s Autumn Budget.

According to the BBC, ‘The ruling Zanu-PF party says former Vice-President Emmerson Mnangagwa will succeed Mr Mugabe.

Mr Mnangagwa’s sacking earlier this month triggered a political crisis.

It had been seen by many as an attempt to clear the way for Grace Mugabe to succeed her husband as leader and riled the military leadership, who stepped in and put Mr Mugabe under house arrest.’

Pound to Rand: SA Ratings Downgrade Fears Keep GBP ZAR Exchange Rate on Bullish Run

Growing worries over the prospect of another potential ratings downgrade for the South African economy have kept South African Rand (ZAR) exchange rates on a softer footing this week.

With markets still taking a rather dim view of the domestic economic outlook, there’s a distinct risk that either S&P’s or Moody’s could opt to downgrade South Africa’s bonds to junk status on Friday.

As fellow ratings agency Fitch has already made the downgrade, this creates room for significant downside pressure on the Rand, with further ratings cuts likely to have a detrimental impact on the economy.

These worries look set to keep the GBP ZAR exchange rate well supported in the coming days, especially if the general sense of market risk appetite does not pick up.

Brexit Speculation Boosts Pound Sterling Exchange Rate Demand

Reports that Theresa May is prepared to up her offer in order to resolve the deadlock with the EU over the UK’s so-called divorce bill helped to boost Pound Sterling (GBP) exchange rates.

While the odds of Brexit negotiations proceeding to the second phase before the end of the year still look mixed at best, this was enough to buoy GBP exchange rates at the start of the week.

However, the bullish mood of the Pound soon faltered as the latest UK public sector net borrowing figure proved larger than forecast.

This heaps additional pressure on Chancellor Philip Hammond ahead of his critical Budget announcement, diminishing the prospect of any new economic stimulus as he continues to grapple with the deficit.

More Pressure Likely for ZAR Exchange Rates Ahead of SARB Decision

Further South African Rand volatility could be store as investors await the South African Reserve Bank’s (SARB) latest policy decision on Thursday afternoon.

While there is no real expectation for policymakers to cut interest rates again at this juncture, there are worries that the central bank will maintain a rather dovish policy bias.

If the SARB indicates that it is considering further monetary loosening, this could weigh heavily on ZAR exchange rates, further diminishing the outlook for the domestic economy.

However, should Wednesday’s inflation data show any easing in price pressures this could encourage policymakers to take a more optimistic view in the near term.

Unless the SARB shows some signs of getting inflationary pressure back under control, confidence in the Rand is unlikely to particularly improve.

Pound Sterling Forecast: No Change Forecast for Latest UK GDP Estimate

Any sense of disappointment over Hammond’s Budget may return the GBP ZAR exchange rate to a weaker footing, particularly if the Office for Budget Responsibility downgrades its economic forecasts as expected.

The second estimate of the third quarter UK gross domestic product will also be in focus this week, with investors expecting to see confirmation that growth picked up slightly on the quarter.

Even if the data sees an upward revision, however, any boost could well be limited by the impact of a more cautious Budget.

Increasing signs of division within May’s cabinet may also dent GBP exchange rates, with the minority government still in a rather fragile position thanks to its deep divisions on the subject of Brexit.

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail