The GBP ZAR exchange rate has seen gradual but choppy gains over the past seven days, thanks to a combination of Brexit-related speculation in the UK and the results of South Africa’s latest elections.
Closing Sterling Short Positions Enables Pound Recovery after Article 50 Shock
Friday saw the Pound receding after two days of gains thanks to a combination of disappointing data and speculation over when a Brexit would officially begin. Wednesday’s strong employment data and Thursday’s resilient retail sales report boosted the Pound earlier in the week, but government borrowing figures released on Friday ended the rally. With firms paying corporation tax in July, expectations were for a strong surplus in public sector finances. However, Public Sector Net Borrowing posted a surplus of £1.5 billion, -£700 million smaller than forecast.
Also weighing on the Pound were rumours from unnamed government sources that Prime Minister Theresa May intended to trigger Article 50 of the Lisbon Treaty before the end of April 2017 at the latest. The suggestion that Britain’s formal exit from the European Union could begin in eight months caused considerable market jitters. As a result GBP ZAR exchange rates fell from 17.7630 to 17.5842, before making a mild recovery after Downing Street issued a statement denying the suggestions.
A Sterling recovery began on Monday and continues today, although this is largely due to the fact that traders betting against the Pound have decided to close their short positions and realise their gains. Investors expecting Sterling to fall borrowed Pounds from brokers and sold them on the market; now that the exchange rate has fallen, they are rebuying Sterling and returning the funds to their broker, keeping the difference between the higher selling price and the lower buying price as profit. A record number of short positions – in excess of 94,000 – were held against Sterling during the seven days to the 16th of August.
Suggestions of South African Political Shift Boosts Rand
The recent South African elections have dealt multiple severe blows to the ruling African National Congress (ANC). Local elections saw the governing party failing to secure a majority, with hung municipalities forcing coalitions between opposition parties. The ANC also lost control of South Africa’s capital city – Pretoria – as well as Cape Town and Johannesburg. In fact, of South Africa’s six largest cities, only President Jacob Zuma’s stronghold of Durban gave the ANC a majority.
Reflecting the anti-Zuma sentiment in South Africa, newly elected Democratic Alliance (DC) Mayor for Johannesburg Herman Mashaba stated;
‘As of this evening, corruption is declared public enemy number one in this city. Public monies that have been misspent, misused, over the last five, 10 years or so … we’re going to take this money, we’re going to look after it, so that we can provide basic services to our people.’
Although the ANC is still in government, investor hopes have been raised that the results of the election will see the party’s power curbed. This could lead to a more stable South Africa, which is currently struggling from a huge rate of unemployment.
This has boosted the South African Rand, allowing ZAR GBP exchange rates to climb to 0.0561 in spite of the Pound’s strength elsewhere.
Pound South African Rand (GBP ZAR) Exchange Rate Forecast; Will Markets Heed UK Q2 GDP?
Preliminary UK GDP figures for the second quarter are set for release on Friday. Currently, economic expansion is predicted to hold steady on the first quarter, growing 0.6% on the first three months of the year and 2.2% on the year. However, because these figures won’t take into account the Brexit referendum, they may be considered somewhat moot by the markets. As Credit Agricole notes;
‘Incoming data, such as this week’s Q2 GDP release, is unlikely to trigger such a development, especially as it should be regarded as more backward-looking.’
South African inflation data is predicted to tick moderately lower tomorrow, while Thursday’s Producer Price Indices (PPI) are predicted to clock in around previous levels.