GBP/ZAR Exchange Rate Surges as South Africa’s Recession Complicates Rand Losses
The Pound South African Rand (GBP/ZAR) exchange rate struck a new two-year high last week as the Rand’s recent woes were exacerbated as South Africa slips into recession.
Data published last Tuesday revealed that South African GDP fell 0.7% in the second quarter, following on from a 2.6% slump in growth at the start of the year, thus plunging the country into its first recession since 2009.
This has been a major blow to the Rand (ZAR) and comes as the currency was already under heavy pressured due to a growing emerging market crisis. So far this year, GBP/ZAR is up around 18%.
Meanwhile the Pound was quick to capitalise on the Rand’s weakness despite the publication of some lacklustre PMI figures at the start of the week, with Sterling’s advance aided in the second half of the week as comments from the EU’s chief negotiator Michel Barnier helped to bolster optimism that a deal could be reached between the UK and the EU.
South African Rand (ZAR) Firms amid Pause in Emerging Market Rout
In what could be a temporary reversal, the South African Rand (ZAR) is advancing on most of its peers, including the Pound (GBP) this morning as those emerging market currencies sold off in recent weeks attempt to rally.
Emerging market currencies open positive: Turkish Lira at 6.44 (+0.44%), South African Rand at 15.01 (+1.32%), Mexican Peso at 19.17 (+0.74%), Russian Ruble at 69.95 (+0.85%) #EmergingMarkets
— CIM Bank News Switzerland (@CIMBank_News) September 11, 2018
This rebound saw ZAR/GBP recoup all of its losses from Monday.
The Rand has been under considerable pressure over the last month as the building emerging market crisis has seen an exodus of investors from developing nations from around the world, so today’s respite is likely to be cautiously embraced by ZAR investors.
This morning’s upswing in emerging currencies appeared to be at least partially attributed to US Dollar (USD) weakness at the start of this week’s session as well as reports about the possibility of a second US-North Korea summit, which would help to defuse tensions across Asia.
There are still some considerable downside risks facing the Rand however, chief of which is ongoing global trade fears, with President Donald Trump’s recent threat to impose tariffs on all Chinese goods sparking considerable concerns for investors.
GBP/ZAR Exchange Rate Forecast: Will a Cautious BoE Drive Sterling Lower?
Looking ahead to later in the week, the Pound South African Rand (GBP/ZAR) exchange rate may end up drifting even lower as the Bank of England (BoE) concludes its latest policy meeting.
In the wake some upbeat labour statistics from the UK this monring, some figures, such as former Monetary Policy Committee (MPC) member Andrew Sentence, believe that the BoE should look into raising interest rates.
Unemployment down. wage growth up. Why hold back on further rate rises? #MPC unlikely to act in September, but they should raise rates to 1 percent in November, and to 1.5-2pc by end of 2019.
— Andrew Sentance (@asentance) September 11, 2018
However the general consensus is that the bank is likely to hold off on further rate hikes for the time being as it continues to monitor progress in Brexit negotiations, with a cautious tone from the bank likely to lead to additional losses for the Pound on Thursday.
Meanwhile the Rand’s fortunes are likely to continue to be tied closely to emerging market sentiment, with another sharp drop in ZAR and other emerging market currencies likely to continue for the foreseeable future.