Pound Sterling to South African Rand Exchange Rate Surges, GBP/ZAR Forecast to Keep Climbing?

Pound to South African Rand Exchange Rate Surges as Emerging Market Currencies Plunge

Despite a lack of appetite for the Brexit-battered Pound (GBP), the Pound Sterling to South African Rand (GBP/ZAR) exchange rate has surged this week as investors have become concerned about emerging market currencies like the South African Rand (ZAR).

After edging just slightly higher last week, this week has seen GBP/ZAR surge from the week’s opening interbank levels of 17.31 to near the level of 17.68 – where it was trending at the time of writing.

Earlier on Friday morning, GBP/ZAR briefly touched on a high of 17.80. This was the best GBP/ZAR level in almost a month.

The primary reason for GBP/ZAR gains this week has been aversion to risky emerging-market currencies like the South African Rand, as investors become concerned about ongoing trade spats.

However, Sterling was unable to really capitalise on the Rand’s weakness as ‘no deal’ Brexit jitters weighed heavily.

Pound (GBP) Exchange Rates Fail to Benefit from Decent UK Growth Results

Friday saw the publication of Britain’s latest Gross Domestic Product (GDP) growth reports, but even this slew of influential data only had a limited impact on the Pound (GBP).

Britain’s Q2 growth rate projections met expectations, rising from 0.2% to 0.4% quarter-on-quarter and edging higher from 1.2% to 1.3% year-on-year.

However, June’s monthly growth result slowed more than investors expected it would, from 0.3% to 0.1% rather than to the forecast 0.2%.

The data did show a slight rebound from the slow growth seen in Q1, but some analysts warned that the economy still isn’t exactly in good shape. According to Nancy Curtin from Close Brothers Asset Management:

‘A rebound in economic growth in the second quarter should be taken with a pinch of salt. Even with some acceleration, the economy is far from its peak.’

Overall though it was a generally optimistic report, and justified the Bank of England’s (BoE) August interest rate hike in the eyes of many economists. Concerns that a ‘no deal’ Brexit is still possible are ultimately limiting Sterling’s strength as the week draws to a close however.

South African Rand (ZAR) Exchange Rates Sold on Risk-Aversion

Concerns surrounding US trade protectionism and the possibility of a US-sparked trade war have made investors more hesitant to buy risky currencies in the past week.

The Turkish Lira (TRY) and Russian Rouble (RUB) have been plunging due to global trade uncertainties and tensions between those nations and the US. The Rand, meanwhile, has weakened by 4%.

There is also mounting concern in global forex markets that the sharp falls in the Turkish Lira could negatively impact economies with relations to Turkey.

The latest South African data was underwhelming too, as South Africa’s June manufacturing production results fell short of forecasts month-on-month.

Pound to South African Rand (GBP/ZAR) Forecast: Brexit Developments and UK Inflation in Focus

Next week the news most likely to have an impact on the GBP/ZAR exchange rate is likely to come from the UK, but any surprising developments in US trade protectionism or market risk-sentiment could have a big impact on the South African Rand (ZAR).

Notable UK ecostats will be published throughout the week. The latest UK job market report, including June wage growth, will be published on Tuesday.

This will be followed on Wednesday by Britain’s July Consumer Price Index (CPI) inflation rate report. If UK inflation slows more than expected, investors will become concerned that the Bank of England’s (BoE) recent rate hike was unjustified and this would weigh on Sterling.

UK retail sales results from July will be published on Thursday, but any notable developments in the Brexit process are likely to overshadow UK data for investors, particularly if they relate to the possibility of a ‘no deal’ Brexit.

Some notable South African data will be published too, including mining production on Tuesday and retail sales on Wednesday, but there’s every chance that political news is more likely to drive the Pound to South African Rand (GBP/ZAR) exchange rate in the days ahead.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon