Hope of political stability in South Africa, coupled with global risk-on appetite, saw GBP/ZAR steadily eroded over the past seven days. The currency pairing trended between 20.7793 and 22.1604.
Mounting Pressure on Zuma Boosts ZAR
This week South Africa’s Constitutional Court delivered a major blow to the President by declaring that he must repay the government money he spent on renovations to his private residence. Zuma spent the equivalent of £11 million on upgrades to his home, which included a swimming pool and an amphitheatre.
In the eyes of many, Zuma has long been the enemy of stability in South Africa, so investors have been cheered by the proceedings, which have demonstrated that the President is not able to operate according to his own interests. They were also cheered by strong data releases, including a significantly smaller-than-expected trade deficit and a return to growth for the manufacturing sector.
Pound Weakened by the Potential Collapse of the British Steel Industry
Pound Sterling was sent reeling this week by the developing steel industry crisis. Indian conglomerate Tata, who itself bought out the stricken UK steel operations of Corus in 2007, revealed plans late on Tuesday night to sell its entire UK steel portfolio.
The announcement threatened the collapse of the entire steel industry unless another buyer could be found. The government has so far rejected calls to nationalise the business and has had to weather strong criticism over its role in the situation. The UK has been a key player in blocking EU plans to raise tariffs on cheap Chinese steel in the past.
After a week of depreciation, the GBP/ZAR exchange rate hit a six-month low of 20.7793 on the 1st of April.
Delayed Fed Rate Hike Bets Boost South African Rand
Janet Yellen surprised investors on the 29th of March with a surprisingly dovish speech to the Economic Club of New York. Although confirming the Fed’s view that the US economy remained strong, Yellen’s urge for caution and her focus on global weakness caused many to question whether the Federal Reserve really is data-dependent, as it claims.
Yellen’s comments undermined trader expectations of an imminent rate hike. The South African Rand experienced a boost in demand thanks to the risk-on appetite, strengthening it further against Pound Sterling.
Undervalued Pound Rebounds on Construction PMI Result
A positive reading from the Markit/CIPS Construction PMI on Monday, which still showed a poor performance in the grand scheme of things, was enough to push the Pound out of a trough. The index was expected to show a marginal slowdown in sector growth, but instead remained steady at 54.2. However, today’s key Services PMI rose by less-than-expected.
GBP/ZAR Exchange Rate Forecast: Steel and Zuma to Drive Movement
The British steel industry crisis is far from over. While several interested buyers have stepped forward, it is unclear whether they intend to purchase all of Tata Steel’s UK assets, or cherry-pick the profitable sections. UK production statistics and trade balance figures could draw focus on Friday.
The political turmoil in South Africa is unlikely to end soon either. Following the Constitutional Court’s ruling, Jacob Zuma faces calls of ‘impeachment’ from opposition parties. As trader anticipation of a Fed rate hike recovers, global risk appetite is likely to recede, its retreat accelerated by the current slide in crude oil prices. This has already started to undermine the recent advances of the South African Rand and could continue to do so over the coming days.
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Summary of major upcoming data releases that we think may move the market.