Foreign Currency Market Update – GBP / ZAR Update
The Pound South African Rand exchange rate slumped to its lowest level since Christmas 2013 during last Friday’s session as investors moved to price-in the announcement of a larger than anticipated Quantitative Easing programme from the European Central Bank (ECB) the previous day. The euroland’s reserve bank revealed that it will be bulk-buying some €60bn worth of the region’s sovereign debt on a monthly basis beginning in March and market participants stumbled over themselves to buy back into risk-laden assets including equities and the Rand. The fact that the ECB also announced that the scheme will run until at least September 2016 added to the positive sentiment surrounding the South African tender and GBP ZAR plunged to close to the 17.000 threshold in response.
However, the weekend market shutdown proved to be a watershed for the Rand and GBP ZAR has started this week’s session where it has been for most of the time during recent years – back on the front foot. The Greek election result – announced on Sunday night – proved to be the catalysts for the renewed shift out of risk. The staunchly anti-austerity Syriza party won a landslide victory in Greece, raising the spectre of a potential Greek exit from the European Union. Syriza narrowly failed to earn an outright majority, but its leaders quickly announced that it had reached a coalition agreement with the smaller Independent Greek party to form a working government. The fall-out saw Germany warn Greece yesterday that it must stick to the terms of its bail-out agreement with the ECB / EU / IMF Troika, causing a flight to safety from investors.
Concerns over the early-week revelation that state-owned utility provider Eskom that it was cutting 2,000 megawatts of electricity from the national grid increased concerns that there might be a ‘lights out’ across South Africa before Summer arrives. The news served to increase the selling pressure on the South African unit and if the situation deteriorates, then expect the Rand to incur further losses. In such a circumstance, look for GBP ZAR to track higher once more, with the psychologically significant 18.0000 threshold providing a realistic target.
Looking ahead, tomorrow’s monetary policy statement from the South African Reserve Bank (SARB) is likely to determine the near-term fortunes of the Rand. If the SARB confounds the markets and delivers a go-ahead message, then the Rand will record fresh gains against the Pound. With the ECB’s large-scale QE programme now a constant in the background supporting risk appetite into the medium term, the GBP ZAR exchange rate could readily trade down into the 16.000 for the first time in over two years if the SARB provides it with a fair wind.
Heads Up
Summary of major upcoming data releases that we think may move the market.