The Pound to South African Rand exchange rate briefly dipped on Monday but by Tuesday was trending near the week’s opening levels of 17.25.
Jitters about Britain’s upcoming general election faded slightly and demand for emerging-market currencies has been mixed, allowing the pair to hold its ground.
Pound (GBP) Firms as UK Election Jitters Subside
Monday saw the Pound drop against the South African Rand (ZAR) and most major currencies as investors reacted to news that the Conservative party’s big lead in the UK general election polls had halved in just a week.
With some pollsters putting UK Prime Minister Theresa May’s Conservatives just 9 points ahead of Jeremy Corbyn’s Labour party, uncertainty rose about the upcoming election – and markets hate uncertainty.
Investors had previously hoped that the Tories would enjoy a landslide victory, potentially leading to more breathing room in Brexit negotiations.
However, a smaller majority or a possible Labour win could cause Brexit negotiations to change significantly.
This speculation made the Pound jittery on Monday. However, as Theresa May U-turned on one of her party’s more controversial manifesto proposals, Sterling recovered on hopes that the Tory lead would strengthen again.
South African Rand (ZAR) Down on Aversion to Emerging-Market Assets
The South African Rand struggled to capitalise on Pound weakness at the beginning of the week. This is largely because traders have been slightly hesitant to buy into emerging market currencies this week.
Traders are anxious about an upcoming review on the South African economy from credit-rating agency Moody’s. Other agencies have recently downgraded South Africa’s credit rating to ‘junk’ and SA officials and markets are hoping the nation will avoid yet another credit rating downgrade.
Investors have also been spurred into safer assets following a devastating bombing in Manchester, Britain. The shock from this event has heightened the general risk-off attitude.
GBP/ZAR Forecast: Key Week for South African News
The South African Rand has the potential to drive GBP/ZAR exchange rate movement this week due to an incoming slew of South African news.
Wednesday will see the publication of South Africa’s April Consumer Price Index (CPI) results, which are expected to show a slight slowing in consumer price pressures.
The year-on-year inflation rate is projected to have worsened from 6.1% to around 5.6%, while the monthly figure is expected to slow from 0.6% to 0.4%.
Thursday’s session will be highly influential as the South African Reserve Bank (SARB) will hold its May interest rate decision. Analysts generally expect the key rate will be left frozen at 7%.
Key UK data will also be published on Thursday, including Britain’s second Q1 Gross Domestic Product (GDP) projection. If this impresses traders, the Pound could see increased demand towards the end of the week.