Foreign Currency Market Update – GBP / ZAR Update
The Sterling South African Rand exchange rate dropped to its lowest level for two weeks this afternoon as investor sentiment soared. The VIX ‘Fear Gauge’, which measures the number and volume of protective ‘put’ orders which US equity traders are placing on the deals which they strike, slumped to its lowest level since the first week of December when trading began in New York today, illustrating the pronounced improvement in the mood amongst investors during the past 24hrs. The risk-driven Rand strengthened as a consequence.
The uptick in sentiment amongst market participants was largely fuelled by yesterday afternoon’s announcement that the eurogroup of Finance Ministers had given their consent to the new Greek government’s proposed economic reforms which it was instructed to put forward in order to qualify for a 4-month extension of its bailout funding. Investors had flinched late on Monday when the Athens policymakers had failed to present their plans by the initial deadline. However, the eurogroup put this oversight to one side and rubber stamped Greece’s proposals to chase its citizens for tax payments and to stamp out tobacco and fuel smuggling. In the end, it didn’t take much, but the markets breathed a collective sigh of relief and the Rand benefitted.
Comments from US Federal Reserve Chair Janet Yellen to the Senate Panel in Washington late yesterday added to the mood of optimism in the markets. The Head of the Fed observed that, ‘too many Americans remain unemployed or underemployed… wage growth is still sluggish,’ and went on to assert that her Bank might not necessarily opt to raise interest rates in the near-term. Rand-holders were buoyed by the prospect of continued ‘easy money’ from the world’s premier central bank.
There was also good news for the Rand on the domestic front yesterday when the latest South African Gross Domestic Product numbers for Q4 2014 printed at an above-expectations year-on-year 4.1%. Drilling down into the figures, analysts noted a pronounced pick-up in the mining sector of the nation’s economy following the recent easing of tensions in the SA labour market. The news provided the Rand with further positive momentum and if this continues, GBP ZAR could hit its near-term low of 17.0356. However, an escalation of the violence in the Eastern part of Ukraine could rapidly send GBP ZAR Northwards once more.
Heads Up
Summary of major upcoming data releases that we think may move the market.