Pound to South African Rand Exchange Rate Gains Evaporate as Irish Border Issue Stymies Brexit Negotiations

Brexit Negotiations Wipe Out GBP/ZAR Gains

Brexit has been back at the forefront of Pound Sterling movement, causing much volatility as the UK scrabbles to convince the EU to progress talks onto the issue of trade ahead of this month’s European Council meeting.

The Pound South African Rand exchange rate had climbed sharply by the end of last week, but has quickly shed all of its gains since trading opened on Monday.

After climbing from 17.95 to 18.13 by Friday, GBP ZAR has since tumbled to 18.10.

Brexit Negotiations Keep Pound Sterling (GBP) Fluctuating as Irish Border Becomes Key Sticking Point

Brexit politics were firmly in the driving seat for the Pound last week.

On Tuesday it emerged that the UK government was likely to offer around €50 billion to the EU to cover the Brexit ‘divorce bill’ and restart stalled negotiations.

Signs of progress on the Irish border issue helped fuel appreciation on Thursday, with an above-forecast reading from the UK Markit manufacturing PMI on Friday keeping GBP ZAR strong going into the weekend.

Theresa May was in Brussels for crunch talks with EU leaders yesterday to try and get the initial issues of the divorce bill, EU citizens’ rights and the Irish border resolved so that the European Council would approve discussions on trade at this month’s meeting.

However, Sterling has tumbled against the Rand, not just because a deal was not reached yesterday, but because Northern Ireland’s DUP – whose support Theresa May relies upon to hold a majority in Parliament – refused to accept the deal on the border she had tentatively drafted with the EU.

Third-Quarter GDP and Ramaphosa Popularity Boost South African Rand

The South African Rand has had plenty to contend with over the past few days, given that positive news from the US has seen markets deserting high-risk assets.

Additionally the latest economic data from South Africa has been rather mixed, with fourth-quarter business confidence unexpectedly inching lower, but the balance of trade showing a surprise surplus of ZAR 4.56 billion instead of the forecast deficit.

Yesterday ZAR received support as market-favourite candidate Cyril Ramaphosa received the most nominations from the ANC to become party leader, ahead of a vote this month.

The Rand has been boosted today by third-quarter GDP figures, which revealed a faster-than-expected rate of growth on the quarter after expansion slowed to 2% instead of the forecast 1.5%.

Second-quarter growth was also revised higher, from 2.5% to 2.8% quarter-on-quarter and from 1.1% to 1.3% year-on-year.

Data Affecting This Week’s South African Rand Forecast

6th December 10.30 ZAR SACCI Business Confidence (NOV)

7th December 10.30 ZAR Mining Production (MoM) (OCT)

7th December 10.30 ZAR Mining Production (YoY) (OCT)

8th December 09:30 GBP Trade Balance (OCT)

8th December 09:30 GBP BoE/TNS Inflation Next 12 Mths (NOV)

Rand Forecast: Will Brexit Developments Cause GBP ZAR Exchange Rate Volatility in Absence of Domestic Data?

The remainder of the week is pretty empty in terms of UK data, until a deluge of reports is published on Friday.

Meanwhile, South African data continues tomorrow with the SACCI business confidence index for November, which is forecast to show an improvement from 92.9 to 93.1.

Gold and mining production figures for October are on Thursday expected to show an improvement from the poor figures seen in September.

While gold production is anticipated to pick up from 2.3% to 3.1%, mining production is projected to see an even more marked recovery.

After tumbling -7% month-on-month in September, mining production is expected to have grown 1% in October.

The floodgates open for the UK on Friday, when industrial, manufacturing and construction production figures, trade balance data and inflation and GDP estimates are all released.

However, despite an empty data calendar in the interim, the Pound could still see volatility on the latest developments surrounding the Brexit negotiations.

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail