It has been a volatile few days for the Pound Sterling to South African Rand exchange rate, thanks to the paradigm-shifting election of Donald Trump as President of the United States.
GBP Charge Turns into Slump as Hopes of Trade Deal Give Way to Other Brexit Concerns
The Pound saw strong demand throughout last week as markets speculated on the future relationship between the UK and the US. President Elect Donald Trump had commented on the campaign trail that Britain would be at the front of the queue for a trade deal should he become President. This supported the Pound higher after his election, alleviating market concerns over the damage Brexit could cause the US economy.
Those fears have not stayed away for long, however. Today, a leaked memo written by an outside consultant has suggested that UK officials still have no real Brexit plan. Although the report said that there was no common Brexit strategy and that the government was drastically understaffed, Theresa May’s spokeswoman struck back, claiming;
‘The report was not commissioned by the Government, it was produced by an individual from an external accountancy firm, who was not working for Government. I … struggle to understand why such an unsolicited memo that has no credence can make front page news or indeed lead broadcast bulletins in the morning. There is no basis for it.’
ZAR Tumbles as Investors Flee from Risky Currencies
Donald Trump’s shock victory in the US election caused the South African Rand to collapse during the past few days. The ZAR/GBP exchange rate tumbled nearly -10% as investors turned away from high-risk asset and fled to the safety of government bonds.
This was not a positive move for South Africa; the government’s credit rating is barely above ‘junk’ status, meaning investors require high yields to lend money to the country. Because the markets were concerned about the safety of their investments, appetite for any kind of South African asset was limited. Investors sold their bonds and then sold the Rand in favour of safer currencies like Pound Sterling.
The South African Rand has been able to claw back some of its losses this week, storming up more than 2.5% against Pound Sterling, although ZAR/GBP still remains around a five-week low.
Today’s news, that South Africa’s opposition party has filed a criminal complaint against embattled President Jacob Zuma, has failed to drag on the Rand.
GBP/ZAR Exchange Rate Forecast; Brexit Fears could Continue to Grip Pound
With Brexit-based fears likely to continue weighing on Pound Sterling, the GBP/ZAR exchange rate may not pay much attention to UK domestic data over the coming days. However, tomorrow’s wage growth figures could be an exception to the rule. This is because analysts expect inflation will still rise sharply, so consumers will be affected more harshly by rising prices if wage growth remains sluggish.
Meanwhile for South Africa, tomorrow’s retail sales will be the only release. Forecasts for the September figures are for a -0.3% decline on the month, but an acceleration from 0.2% to 0.7% on the year.
Given that correctional trading is helping the Rand to recover, ZAR exchange rates may remain largely impervious to domestic data in the short-term.