The Pound to South African Rand exchange rate plunged this week as the emerging market Rand benefited from the political jitters afflicting Sterling.
GBP/ZAR hit a two-month-low on Tuesday morning before rebounding from its worst levels.
Pound (GBP) Weak on Persistent Political Jitters
Sterling trade has been jittery since the results of the UK general election last week as uncertainty clouds Britain’s political outlook and economists question what effect it may have on Brexit negotiations and the economy long-term.
Monday’s developments included news that the government’s Brexit angle was unchanged despite the Conservatives losing their majority.
With formal Brexit negotiations set to begin next week but potentially being delayed as the new government continues to find its feet, the Pound has been lacking in appeal.
With everyone so focused on the election result, today’s UK data has had comparatively little impact.
Tuesday saw the publication of Britain’s May Consumer Price Index (CPI) results. Inflation was higher than expected in both yearly and monthly prints, with results of 2.9% and 0.3% respectively.
However, the Bank of England (BoE) has already indicated that it won’t be pushed into tightening UK monetary policy even if inflation reaches 3%. This fact, in combination with concerns that consumer spending could struggle in the face of rising inflation and stagnant wage growth, meant the Pound’s recovery was limited.
South African Rand (ZAR) Largely Unaffected by Moody’s Downgrade
The political situation in the UK has helped to offset the negative impact from news that Moody’s downgraded its South African credit rating, leaving GBP/ZAR resilient.
The credit rating was cut from Baa3 to Baa2 with a negative outlook due to recent political turmoil in the nation. Moody’s claimed that these developments could undermine South Africa’s institutional strength.
While the Rand briefly dropped in reaction to the news, it quickly recovered and GBP/ZAR remains close to post election lows.
GBP/ZAR Forecast: Political Developments and BoE in Focus
The Pound to South African Rand exchange rate is unlikely to recover much over the next week as investors brush over UK data amid persistent political uncertainty.
Wednesday will see the publication of British job stats and South Africa’s latest business confidence survey and retail sales data.
Britain’s employment data is unlikely to strengthen the Pound much, but SA data could impact the Rand.
The UK’s murky political and economic outlook is likely to make the Bank of England (BoE) even more cautious with regards to its future policy outlook when it gathers on Thursday. If the central bank uses this week’s policy meeting to imply that no adjustments to either interest rates or quantitative easing can be expected for some time, GBP exchange rates would come under further pressure.