Update: Unfolding Vote Leave Controversy Weighs Down GBP/ZAR Exchange Rate
Fresh Brexit-based jitters have kept the Pound to South African Rand (GBP/ZAR) exchange rate under a significant degree of pressure.
Political tensions over Brexit mounted once again in the wake of suggestions that members of the Vote Leave campaign ‘may have committed criminal offences’ over a channelling of funds to controversial data miner Cambridge Analytic.
These latest signs of controversy naturally limited the appeal of the Pound (GBP), overshadowing recent hopes of progress towards an agreeable final Brexit deal.
South African Rand Exchange Rates Rally after Credit Outlook Upgrade
There was considerable relief amongst investors after Moody’s opted to leave South Africa’s credit rating on hold, prompting a sharp slump for the Pound to South African Rand (GBP/ZAR) exchange rate.
As the ratings agency lifted its outlook on the South African economy to stable, suggesting that a downgrade is less likely in the coming months, this gave investors fresh cause for confidence in the South African Rand (ZAR).
The decision to keep the rating above junk status allows the country to hold onto its place on international indices, and making it easier for the government to finance its debts.
This was the latest vote of confidence for President Cyril Ramaphosa, boosting market bets that the new cabinet will be able to get South Africa on a stronger economic footing once again.
With the wider sense of global risk aversion also easing somewhat, driven by hopes that a US-China trade war can be averted, there was little to hold back ZAR exchange rates at the start of the week.
BoE Hawkishness Fails to Boost Pound Demand
In the wake of the Bank of England’s (BoE) March policy meeting the GBP/ZAR exchange rate has lost much of its earlier momentum, meanwhile.
Although BoE policymakers adopted a largely hawkish outlook on monetary policy this failed to boost the Pound (GBP), which had largely strengthened over the course of the last week.
With investors considering the odds of a May interest rate hike to be fairly priced into GBP exchange rates at this stage there appeared little in the way of upside potential for Sterling.
Lingering uncertainties over the subject of Brexit also helped to limit the appeal of the Pound, with key issues such as the Irish border still yet to see any signs of resolution.
This continues to cast something of a shadow over GBP exchange rates, especially as signs point towards a slowing in the UK housing market.
Rand Vulnerable as SARB Interest Rate Cut Forecast
However, the GBP/ZAR exchange rate could find a rallying point if the South African Reserve Bank (SARB) opts to cut interest rates on Wednesday.
After South Africa escaped another ratings downgrade the prospect of fresh monetary policy action has been seen to increase, to the detriment of the Rand.
While a rate cut would appear to be justified by the recent dip in inflationary pressure this would still leave ZAR exchange rates on a softer footing.
If the SARB opts to remain on hold, though, this could give the Rand incentive to push higher across the board over the course of the week.
A narrowing of February’s trade deficit may offer additional support to the Rand, meanwhile, as investors hope to see fresh evidence of a positive impact from South Africa’s new leadership.
UK Consumer Credit Data Forecast to Provoke Further GBP/ZAR Exchange Rate Volatility
Additional volatility is likely in store for the GBP/ZAR exchange rate with the release of the latest UK net consumer credit figure.
Any uptick in credit could boost confidence in the UK economic outlook, indicating that consumers are in a more positive mood.
However, as BoE policymakers have previously expressed concern over the increasing reliance on debt amongst UK households a higher reading may still discourage investors.
If markets see the odds of a May interest rate diminishing the GBP/ZAR exchange rate is likely to lose further support.