Brexit uncertainty has lessened over the past seven days, with the Pound South African Rand (GBP ZAR) exchange rate trending between 18.6873 and 19.2466.
Pound Recovers on Surprise Bank of England Rate Hold
Despite continued economic headwinds, the Pound was boosted throughout last week, thanks to the calming effects of a new Prime Minister and a shock rate freeze from the Bank of England (BoE).
The prospect of a long, hard-fought Conservative leadership contest quickly evaporated on Monday when contender Andrea Leadsom announced she was withdrawing. This left only Theresa May in the running. The Pound instantly reacted, even though there was confusion as to what would happen next; would May become Prime Minister by default, or would the party’s 1922 committee put forward another candidate – perhaps Michael Gove?
In the end, it was the former. Theresa May became Prime Minister of the United Kingdom on Wednesday evening, although by this point markets had turned their attention back to the approaching Bank of England interest rate decision on Thursday. This caused the Pound to fall from an early morning peak of 19.1830 to 18.8567 before the BoE announced its decision.
Markets were shocked to discover the Monetary Policy Committee (MPC) had kept interest rates on hold, preferring to wait for further information before adjusting policy. Markets have since priced in a cut for August, although policymaker Martin Weale has today indicated that may not happen either;
‘People who trade in markets know that the Monetary Policy Committee sets policy month by month in the way that its members think appropriate. It does sometimes, as we did in our July meeting, give an indication of where policy may go in the future. But that is no more than the best judgement at the time and not in any sense a commitment; the public understand that.’
Although the Pound started today’s session strong, this recovery was based upon correctional trading after Friday’s bought of profit-taking and UK construction output slump weakened the Pound from its high. Those gains are now starting to ebb away, leaving the Pound trending halfway between last week’s highs and lows.
Economic Optimism Fails to Strengthen South African Rand
News from South Africa has been largely positive, although turbulent commodity prices and the previous week’s warning over the state of the economy continued to provide headwinds. The South African Rand spent most of the week struggling – and failing – to regain the early high of 0.053 reached on Monday.
The South African Rand was buoyed towards the end of the week by the news that South Africa had reclaimed its place as the second biggest economy on the continent. South Africa had slipped down the rankings into third in May, pushing Egypt into second, according to research by KPMG. The slump was thanks to South Africa’s slowing economy and the fact that the Rand was weakening at a much quicker pace than the Egyptian Pound (EGP).
Investors were further cheered by the news that South Africa was swiftly closing the gap between itself and Nigeria, which is Africa’s largest economy. The difference in the two nation’s economies has fallen from US$170 billion in 2015 to US$60 billion according to the latest figures.
On Friday, Finance Minister Pravin Gordhan tried to move investor focus away from the country’s political issues. Gordhan was reappointed after respected minister Nhlanhla Nene was removed by President Jacob Zuma, allegedly for repeatedly trying to curb exorbitant government spending. Speaking at a business conference in Mpangeni, Gordhan claimed;
‘Look at the world around us today. We are an extremely stable country. When we go out to the world – London and New York and trying to explain who we are as South Africa and why people should invest their money, we’ll say we are a noisy democracy … but we have remarkable stability in South Africa.’
Despite late-week positivity, the ZAR/GBP exchange rate was trending around the week’s lowest levels of 0.051 going into the weekend.
Pound to South African Rand Exchange Rate Forecast: First Post-‘Brexit’ PMIs to Create GBP Volatility
There are multiple UK data releases due out this week, including tomorrow’s consumer price index for June, as well as Wednesday’s jobless claims and Thursday’s retail sales and public borrowing figures.
Key amongst the UK data will be Friday’s preliminary Markit manufacturing, services and composite PMIs for July – the first post-‘Brexit’ measures. The forecasts are currently dovish; manufacturing is expected to weaken from growth of 52.1 to a contraction of 47.5, services from 52.4 to 48.7 and the composite from 52.4 to 48.5.
South Africa’s economic data for the week consists of inflation rate figures on Wednesday, which are unlikely to cause much movement for the Rand considering they are forecast to show only a minor firming. The South African Reserve Bank (SARB) will decide interest rates on Thursday, with a strengthening rand and weakening economy likely to motivate policymakers to keep rates on hold.