GBP/ZAR Exchange Rate Soars as Rally in USD Prompts Markets to Shy Away from Emerging Markets

Uptick in GBP/ZAR Exchange Rate Driven by Fall in Global Risk Appetite

The Pound South African Rand (GBP/ZAR) exchange rate got off to a rocky start last week, with the pairing witnessing wild fluctuations in the first half of the session.

This was largely driven by a mix of Brexit sentiment and central bank speculation, with Bank of England (BoE) Governor, Mark Carney hinting that the bank would raise it growth forecasts this year.

However GBP/ZAR rocketed higher in the second half of last week’s session amid a rally in the US Dollar (USD), with the rebound causing a sharp drop in risk appetite among investors and pressuring the Rand.

South African Rand (ZAR) Firms on Likelihood of Zuma being Ousted

So far this week the South African Rand has managed to recoup almost all of last week’s losses on speculation that President Jacob Zuma may be forced out of office this week.

The ruling African National Congress (ANC) met on Monday in an attempt to step up pressure on Zuma to quit over his disappointing economic record as well as corruption allegations.

This follows Zuma’s replacement as ANC leader by Cyril Ramaphosa in December.

While his critics wish to see him gone before Thursday’s State-of-the-Nation, it remains unclear how likely this is to actually happen.

Despite this, the Rand is still appreciating this morning on hopes that Zuma’s removal will herald the start of widespread reforms, with his successor, Ramaphosa making a robust economic recovery one of his key aims of office.

However French bank Societe Generale SA is a less sanguine about ZAR’s future, fearing volatility for the currency ‘given the high hurdle for delivery on the tasks of restoring fiscal discipline.’

Pound (GBP) Pressured by Brexit Uncertainty

At the same time the Pound is struggling to advance this week as the UK government insists that it will leave the EU customs union after Brexit.

After coming under increased pressure from Brexiteers within the Conservative party for a complete separation from the EU, Downing Street made a statement on Monday outlining plans to withdraw from the EU customs union.

However upon meeting with Theresa May and Brexit Secretary David Davis yesterday, the EU’s chief negotiator, Michel Barnier claimed that trade barriers will be ‘unavoidable’ outside the customs union.

This weighed on the Pound as it appeared to dent the chances that the UK will be able to agree upon a new trade deal with the EU.

GBP/ZAR Forecast: Will BoE Hint at Possible Rate Hike?

Looking ahead movement in the GBP/ZAR exchange rate this week is likely to be driven by the BoE’s first policy meeting of the year.

Markets will be closely watching for whether the BoE follows other major central banks in adopting a more hawkish outlook in 2018, with any hints at the possibility of a rate hike likely to prompt a jump in the Pound.

Meanwhile the ANC’s National Executive Committee will meet on Wednesday to decide the fate of Zuma, with the possibility that he may cling to power a little longer likely to dent the Rand’s recent gains.

Hannah Wilson

Contact Hannah Wilson