Despite optimism from Federal Reserve officials regarding a near-term rate hike, traders are less confident given EU referendum uncertainty, domestic political instability and China’s ongoing economic woes. As a result of this, emerging market assets climbed on Monday.
Rand Exchange Rates Climb despite Political Concerns
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate cooled by around -0.2% during Monday’s European session.
As explained above, reduced bets regarding a near-term Federal Reserve rate hike supported demand for emerging market assets on Monday even as market sentiment drooped in the face of falling commodity prices and stock volatility. However, the Rand’s appreciation has been somewhat limited compared to other EM assets thanks to mounting domestic political uncertainty.
South Africa’s National Prosecuting Authority is attempting to appeal the High Court ruling to drop a corruption case against President Jacob Zuma seven years ago. Should the appeal be successful, the President will face 783 charges.
Confidence in Zuma’s ability to rule was dented after he appointed an unknown to the post of Finance Minister, a move that inspired a huge drop in the value of the Rand and groans from South African officials and traders alike. As a result, Zuma quickly replaced the new Finance Minister, but the damage was already done.
Since then, Zuma has been found guilty of using state-backed funding to make improvements to his own home.
GBP Exchange Rates Mixed as EU Referendum Uncertainty Provokes Volatility
Last week the Pound strengthened considerably, reaching multi-month highs and shaking off the title of the worst performing currency of 2016. This was thanks to easing ‘Brexit’ concerns as opinion polls suggested that the UK will vote to remain in the European Union.
Despite a complete absence of domestic data, the British Pound has been subject to heightened volatility on Monday, fluctuating versus its major peers. EU referendum uncertainty is the main driver of GBP movement, with confidence that the UK will vote to remain in the EU receding following the latest set of opinion polls.
The polls showed that the UK is divided over the issue and indicated that the vote is likely to be close. On average nearly three-quarters of those under 25 will vote to remain, whilst almost three-fifths of over 65s will vote to leave.
Political uncertainty aside, one of the major factors weighing on demand for the UK asset is speculation of a significant economic slowdown taking place in the second-quarter. Recently there have been dovish comments from Bank of England (BoE) officials stating that the UK’s economic struggles cannot be linked solely to EU referendum uncertainty.
GBP/ZAR Forecast to Fluctuate despite Limited Data
This week’s data docket is somewhat sparse of both British and South African publications. However, the GBP/ZAR exchange rate is likely to see significant volatility this week given political uncertainty in both nations. US Dollar movement and market sentiment will also be a key driver of GBP/ZAR exchange rate changes.
Thursday’s ecostats will be the most likely to impact GBP/ZAR. The second estimate for first-quarter UK Gross Domestic Product will be closely watched by traders. South Africa’s PPI data, due for publication on Thursday also, will be less impactful.
Over the past week, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate was trending in the range of 22.4057 to 23.3077.