The Pound to South African Rand exchange rate has once again tested levels above 17.00 this week. However, as markets perceive the Rand as being undervalued, even a particularly robust Pound has had trouble driving GBP/ZAR to monthly highs.
Pound (GBP) Surges as UK General Election Called for June
Tuesday saw the Pound surge as UK Prime Minister Theresa May suddenly and surprisingly announced that the next UK general election would be held on the 8th of June.
The next election had previously been scheduled to take place in 2020, but as Theresa May succeeded David Cameron as PM after his resignation, she is now attempting to solidify her position as leader and increase her majority in Parliament.
This move has been seen by analysts as potentially improving long-term stability in Britain as (should May succeed) the PM may face less resistance from opposition parties.
If May’s Conservative party increases its Parliament majority, it could also augment May’s power to move along smoothly with her Brexit plans.
The perceived improvement in long-term stability has been the main reason for the Pound’s strength this week.
South African Rand (ZAR) Seen as Undervalued Despite Political Uncertainty
Recent weeks have seen South Africa’s economic and political situation worsen considerably. Various credit agencies have downgraded South Africa’s credit rating to junk, undermining South Africa’s place on the global economic stage.
As a result, the Rand has been in free-fall since late March. GBP/ZAR, for example, has soared from 15.51 to 17.00 due to Rand weakness. GBP/ZAR briefly hit a 2017 high of 17.32 earlier in April.
The Rand’s recent selloff appears to have been overdone however, as the embattled currency has been able to hold GBP/ZAR away from last week’s best levels despite the recent strength of the Pound.
The undervalued South African Rand has benefitted from small bits of good news from South Africa, such as the ongoing protests in South Africa demanding that controversial President Jacob Zuma leaves office.
GBP/ZAR Forecast: UK Retail Data Due Friday
Thursday may see GBP/ZAR fall back from this week’s highs as investors cool on the Pound and the Rand continues to look for advancement opportunities.
Bank of England (BoE) Governor Mark Carney will be speaking in Washington on Thursday, but this is unlikely to have a significant influence on the Pound unless he brings up UK monetary policy.
Friday’s session will be much more influential as it will see the publication of Britain’s March retail sales data.
Analysts have been concerned in recent months that rising inflation in Britain and slowing wage growth could cause household spending to slow significantly and dent the nation’s economic outlook. A decline in sales could send Sterling lower before the weekend.