The Pound Sterling to South African Rand exchange rate saw volatile trading due to fears of a ‘hard’ Brexit, causing GBP ZAR to slump from 18.2676 to 17.4900 over the past seven days.
Will UK Opt for ‘Hard’ Brexit? GBP ZAR Tumbles as Investors Fear So
The Pound to South African Rand exchange rate experienced a steep decline during the first half of last week. By midweek GBP ZAR had dropped to 17.4900 from starting levels of 18.0832, a decline of around -0.3%, motivated by fears regarding Brexit.
While consumers appear to be shrugging off the shock of the referendum outcome, data from businesses has not been so encouraging. The Pound weakened yesterday in response to a survey showing that business confidence had dropped to a four-year low and was stuck in the longest state of decline since the financial crisis of 2009.
According to Lloyds’ Tim Hinton;
‘The EU referendum vote has introduced a level of uncertainty for companies as the UK decides on the best model for its future relationship with the EU, and this is likely to continue for the foreseeable future.’
However, he did also note that;
‘Whilst sentiment has fallen to a four-year low, it remains well above the lows reached during the global financial crisis of 2008⁄9.’
Boris Johnson Upsets Pound Sterling after Suggesting Early 2017 for Article 50 Trigger
Further adding to the Brexit uncertainty were warnings that UK exports could drop by -8% within 3 years’ time and concerns that the UK could lose its financial services passporting rights. It was estimated that 5,500 firms in the UK rely on these rights, so the threat of losing them could cause serious harm to the UK economy; in particular the City of London.
Towards the end of the week’s trading, Foreign Secretary Boris Johnson caused even more market consternation after suggesting that the UK government could trigger Article 50 early in 2017 – sooner than the markets had expected. Johnson also rubbished claims the UK couldn’t secure single market access without having to accept freedom of movement in return, although EU officials were quick to reassert that this was the case. The Foreign Secretary even stated that the entire withdrawal process would not take the full two years stipulated by the Lisbon Treaty.
South African Rand Exchange Rates Find Support from Moody’s Credit Rating Outlook
Meanwhile, the South African Rand received a boost on Tuesday when credit ratings agency Moody’s suggested there was only a 30% chance of South Africa’s credit rating being cut. The agency is due to review South Africa’s sovereign debt rating in November, with previous indications that, without serious budget and economic reforms, a downgrade may be necessary having weakened the Rand in previous weeks.
Moody’s also expressed confidence in the policies of Finance Minister Pravin Gordhan and indicated that even if he were removed from power, as some fear Jacob Zuma may do, the policies he has set in place will still benefit the South African economy. Traders did take the comments with a pinch of salt, however, as Moody’s is the most optimistic of the big credit agencies with regards to South Africa, awarding it a credit rating one higher than its peers S&P and Fitch.
Monetary Policy Tightening Could Continue, Claims SARB Governor
The South African Rand was further supported by suggestions that monetary tightening could continue further. Although the South Africa Reserve Bank (SARB) had suggested after leaving interest rates on hold at 7% on Thursday that it was nearing the end of its easing cycle, inflation remains towards the top of the target range. Additional interest rate increases may therefore be on the horizon, further strengthening the South African Rand. SARB Deputy Governor Daniel Mminele commented in a speech uploaded to the bank’s website that;
‘There is no guarantee that the causes of the reduced risks to the inflation outlook will persist in coming quarters,” Mminele said in a copy of a speech posted on the central bank’s website Tuesday. “Some of the factors which have had a favourable impact on the inflation outlook could reverse quickly, in which case the view that we are close to the end of the tightening cycle would need to be reassessed.’
Winnie Mandela Adds Her Voice to Calls for Jacob Zuma to Step Down, ZAR Strengthens
Further improving investor appetite for the Rand have been building political pressure on controversial President Jacob Zuma to step down from his post. High profile figures including former Finance Minister Trevor Manuel and Winnie Madikizela-Mandela have urged the President to relinquish power. Even Zuma’s brother, Michael Zuma, has pleaded for him to step down, stating that public anger with his leadership has become so strong that the President risks inciting assassination attempts should he not step aside.
GBP ZAR Exchange Rate Forecast; UK Investors Looking Ahead to September PMIs
UK housing market data will be influential over the coming days, causing significant volatility for the Pound if it suggests the market is weakening. Next week promises stronger movements with the next round of Markit PMIs on the calendar. The first indices post-Brexit crashed into contraction territory, before the latest measures posted a sharp rebound. If the overall market volatility has subsided we may see a more muted movement, but in which direction will still be of considerable interest to investors.
The South African Rand could be moved by two important releases over the coming days. Friday’s consumer confidence index is predicted to edge up to a still solidly-negative -10, while the balance of trade is expected to weaken from ZAR5.2 billion to ZAR3.6 billion, which may weigh on the Rand.