Following a week of Brexit-based volatility for the Pound Rand exchange rate, Sterling has been able to recoup some of its losses against the South African Rand thanks to unsupportive metal prices and concerns about the impending South African budget.
Last week, the interbank Pound Rand exchange rate fell from 17.09 to 16.56.
Pound Advances against Rand despite Blocked Amendments to Article 50 Bill
The Pound has been firm against the Rand today, although this is largely the result of ZAR weakness.
UK news has not been especially positive, as the biggest attempts by MPs to amend the Article 50 bill in the House of Commons have been voted down.
Among the proposals were plans to have regular updates on how Brexit negotiations are going; with the plans now sunk, the UK seems set to experience greater future uncertainty due to a lack of transparency over the Brexit process.
South African Rand Weakened on Budgetary Concerns
In the lull before the South African budget announcement by Pravin Gordhan, the Rand has fallen against the Pound.
This follows sudden declines in the prices of gold and platinum, as well as a rising level of uncertainty about the impending South African budget announcement by Finance Minister Gordhan.
Economics Professor Jannie Rossouw has forecast that on the tax front;
‘South Africans…are unlikely to get tax relief to offset bracket creep and they are likely to face increases on consumption products such as alcohol, tobacco, soft drinks and fuel. It’s also highly likely that the government will announce some form of sugar tax in this budget. But all of this won’t be enough to fund the government’s income requirements. This leaves it with one of three options: an increase in Value Added Tax (VAT); an increase in company tax; or an increase in personal income tax’.
Raising taxes is never a popular option for a government and given the current pressures that the South African economy is under, such a measure could end up causing more short-term harm than good for citizens on the lowest income levels.
GBP/ZAR Exchange Rate Forecast
This week, Pound Sterling/South African Rand exchange rate movement may occur as a result of another Commons vote on the Article 50 bill, as well as UK trade, production and GDP stats on Friday.
South African news will be limited to Thursday, but include national production figures for gold, mining and manufacturing.
On the UK side, industrial production for December is expected to worsen on the month but rise on the year, while a similar forecast has been made for the manufacturing production stats over the same period.
Closing off UK news on Friday will be the National Institute of Economic and Social Research (NIESR) GDP estimate for January, which could weaken the Pound Rand exchange rate if it points to falling growth in the future.
The Article 50 bill is widely expected to encounter little resistance from now on, so another Commons approval this week could further weaken the Pound as it brings the UK a step closer to Brexit.
For South Africa, mining production is due to slow annually by -3.8% while further losses may come from the pessimistically predicted manufacturing production figures.