GBP/ZAR Exchange Rate Fluctuates as Mboweni’s Budget Raises Concerns
The Pound South African Rand (GBP/ZAR) exchange rate traded in a wide range last week, with the publication of South Africa’s long-awaited budget and further Brexit uncertainty prompting significant volatility in the pairing.
Kicking off the week was a notable slump in Sterling as the UK currency was rocked by suggestions that Conservative rebels were plotting an imminent vote of no confidence against Theresa May as criticism of her handling of Brexit grew.
However the largest swing in GBP/ZAR came immediately following the release of South Africa’s much-anticipated budget.
We saw the Rand nosedive on Wednesday as newly appointed Finance Minister Tito Mboweni pulled no punches as he delivered a sobering assessment of South Africa’s economy, slashing growth forecasts and warning of wider budget deficits.
Cheslyn Francis, portfolio manager at Afrifocus Securities said:
‘The risks in the budget were realised and the Rand felt that significantly. Mboweni provided a realistic view.’
The GBP/ZAR exchange rate then proved more subdued in the latter half of the session, with persistent Brexit uncertainty and a sudden drop in the Chinese Yuan supressing trade in each currency.
Pound (GBP) Exchange Rates Suffers In Light of Persistent Brexit Jitters
The Pound (GBP) is trending lower against the South African Rand (ZAR) and the majority of its other peers this morning as ongoing Brexit uncertainty drags on the UK currency.
While there are no fresh headlines driving the slide in Sterling, it appears markets are becoming more cautious the closer we get to the UK’s formal leaving date without a deal, and with politics in the UK becoming increasingly fractured.
Viraj Patel, Foreign Exchange Strategist at ING explains:
‘It’s not a disaster for the pound if we don’t get an early Brexit deal, although it will undoubtedly raise questions over the stability of the UK government – and the degree of political risk premium that needs to be priced into GBP assets in the near-term.’
GBP/ZAR Exchange Rate Forecast: BoE Rate Decision in Focus after Rise in UK Wage Growth
Looking ahead to the remainder of this week’s session, the main catalyst for movement in the Pound South African Rand (GBP/ZAR) exchange rate looks set to be the Bank of England’s (BoE) rate decision on Thursday.
While the Bank is not expected to make any revisions to its monetary policy this week, markets will be watching closely for any change in language from policymakers after UK wage growth jumped to a nine-year high in August.
Policymakers have repeatedly stated that a sustained pick-up in wage growth would be necessary if the BoE is to continue tightening monetary policy, and while no rate hikes are expected until after Brexit, a more hawkish tone from the bank may still help to bolster Sterling.
In the meantime South Africa will publish its latest manufacturing PMI on Thursday, with the Rand expected to weaken if the data reveals that domestic manufacturing activity continued to contract in October as forecast.