The Pound to South African Rand exchange rate failed to advance on Monday despite bullishness in the Pound keeping the pair near the week’s opening levels. The strength of the Rand as traders flocked back to risky investments persevered on Tuesday, taking GBP/ZAR to a new weekly low of 17.54.
Pound (GBP) Fails to Hold Gains despite Brexit Transition Hopes
After beginning the week trending limply as Brexit concerns began to return to the forefront of GBP trade, the Pound saw a surge of demand on Monday afternoon thanks to comments made by UK Prime Minister Theresa May.
In a speech at this week’s CBI conference, May intended to ease the Brexit anxiety of businesses by hinting that the UK government would aim for a more transitional Brexit.
Analysts have suggested that this would entail a gradual withdrawal from the EU once negotiations are complete, to avoid what May and CBI President Paul Drechsler called a ‘cliff-edge’ scenario where businesses will suddenly find themselves sinking or swimming in a new economic environment.
Despite this strength in the Pound, the bullishness of the Rand held Sterling at bay. As Sterling trade cooled on Tuesday, this made it even easier for the Rand to take GBP/ZAR down.
South African Rand (ZAR) Rallies as Traders Return to Risk
The South African Rand has plummeted since the election of the next US President, Donald Trump, as markets reacted to the possibility that emerging markets may suffer from an anti-trade Trump administration.
As an emerging market currency, the Rand has also been weakened by more expensive commodities like oil.
However, when European markets opened this week the Rand surged and has continued to rally since, even taking down the bullish Pound as calmed markets bought risky currencies up from their cheapest levels.
Weakness in the US Dollar on Monday and Tuesday also gave the Rand stronger ground to trade on.
GBP/ZAR Forecast: Pound on Track for Losses This Week?
Having its own bullishness outperformed by the Rand’s, the Pound may lack the strength to recover to the week’s opening levels or beyond in the GBP/ZAR exchange rate this week.
While hopes for a Brexit transition deal will likely act as a strong underlying factor in Pound trade in both the short and long-term if UK officials continue to play up its potential, the Pound lacks the momentum needed to recover much this week.
However, Wednesday’s session could be key for Sterling trade. The UK’s new Chancellor of the Exchequer, Philip Hammond, is set to deliver his first budget Statement during Wednesday’s European session.
If Hammond continues to play up the potential challenges facing post-Brexit Britain, Sterling could continue to see weak trade for the rest of the week. On the other hand, a more hawkish outlook for the UK economy could see the Pound make recovery strides.
This may see GBP/ZAR recover slightly, as the Rand’s own bullishness is likely to fade in the coming days and investors will instead readjust as they continue to cool from Trump market shock.