Political turmoil in South Africa and further arguments over the impact of a ‘Brexit’ on the UK have sparked significant volatility in the financial markets. As a result, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate has trended between 21.6583 and 22.2254 over the past seven days.
Jacob Zuma Pressured after Clash with Finance Minister and Vote of No Confidence
The Pound Sterling to South African exchange rate slumped at the beginning of last week on the news that South African President Jacob Zuma had clashed with Finance Minister Pravin Gordhan. Gordhan, whom Zuma appointed after a disastrous attempt to replace a previous minister with a more compliant official, was angered after the President refused his attempts to reform the South African Tax Agency.
Anticipation ahead of the second vote of no confidence in President Jacob Zuma in a twelve month period saw the Rand making strong gains. Investors were seemingly hopeful that the President would be ousted and replaced with a leader more in tune with and committed to South Africa’s financial and economic needs. Zuma’s ruling party, the African National Congress (ANC) controls two-thirds of the parliamentary assembly, however the challenging Democratic Alliance (DA) party was hoping that some of Zuma’s own lawmakers would rebel against him.
In the end, Zuma easily defeated the motion, the proceedings for which he did not attend, with 225 lawmakers voting against it and 99 voting in favour.
Soft Economic Data Weakens GBP/ZAR
A slowdown in UK house prices and a fall in the Markit Purchasing Managers Indexes for the services sector and overall economy weakened Pound Sterling on Thursday. The services PMI had been anticipated to dip slightly, falling to 55.1 from 55.6, but instead dropped to 52.7. With the service sector accounting for more than three-quarters of UK GDP, the sluggish performance was of particular concern. Combined with poor readings from other sectors released in the preceding days, the Composite PMI fell from 56.1 to 52.8.
‘Brexit’ Bets Continue to Dominate Pound to Rand Exchange Rate
The GBP/ZAR exchange rate has suffered thanks to another two days of heightened ‘Brexit’ speculation. Yesterday, rumours that British Chambers of Commerce Director General, John Longworth, had been suspended for his pro-‘Brexit’ views caused concern. The fact that the BCC head had broken the lobby’s supposed impartial stance to air his views that Britain would be better off outside the European Union was heralded by the ‘leave’ campaign as a major coup.
Today, however, the ‘Leave’ campaign are facing similar criticism after a leaked email showed that Boris Johnson’s staff had been banned from expressing any pro-EU opinions in a professional capacity lest their comments undermine those of their anti-EU leader.
Scope of Economic Damage Caused by Drought Harms South African Rand
The South African Rand has also been weakened, allowing GBP-ZAR to advance, after news that the South African Current Account deficit has widened considerably. The previous figure of -ZAR172 billion was predicted to shrink to -ZAR123.7 billion but instead grew to -ZAR2.8 billion in the final quarter of 2015. News that the current drought in the country has cost farmers -ZAR16 billion (£700 million) has further depressed the South African asset.
Looking ahead, tomorrow sees the release of UK industrial and manufacturing production data and the NIESR GDP estimate, while Friday heralds trade balance data. South Africa will publish key data on Thursday, including gold and mining production stats, manufacturing production data and the latest Business Confidence index.
Heads Up
Summary of major upcoming data releases that we think may move the market.