Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Slumps 2% as Brexit Turmoil Hits

Pound to South African Rand (GBP/ZAR) Exchange Rate Falls on Risk-Sentiment and Brexit Deal Fallout

While major progress was made in the UK-EU Brexit deal over recent days, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate fell sharply on Thursday morning as uncertainties persisted and risk-sentiment bolstered the South African Rand (ZAR).

Since opening this week, GBP/ZAR has fluctuated broadly around the week’s opening levels. At the time of writing on Thursday GBP/ZAR is trading at its lowest level of the week so far at an inter-bank rate of ZAR 18.268, which is down over 2% on the day.

Sterling’s (GBP) volatility has persisted in recent sessions, despite news that a UK-EU Brexit deal had been reached and was set to be confirmed in a key EU summit on 25 November.

Investors remain anxious about the obstacles the Brexit bill still needs to overcome, such as the UK Parliament vote to pass it into law.

Meanwhile, signs that the US and China were more willing to further negotiations and de-escalate their trade tensions made investors more willing to buy risky emerging market currencies like the Rand.

Pound (GBP) Exchange Rates Volatile on Fears of Upcoming Brexit Obstacles

While the UK-EU Brexit draft text reached by negotiators this week appeared to generally win the approval of UK Prime Minister Theresa May’s government cabinet, many uncertainties persisted and kept the Pound unappealing.

On top of broad uncertainty that there was not enough UK support for such a deal to pass through UK Parliament, investors were shocked by major resignations on Thursday morning.

The Pound (GBP) plunged in response to news that UK Brexit Minister, Dominic Raab, had resigned from the cabinet due to disagreement with the proposed deal.

Shailesh Vara, Northern Ireland Minister, also resigned in protest at the Brexit plan.

Concerns that domestic opposition to the Brexit bill could cause the deal to fail and lead to a worst-case scenario of ‘no-deal’ caused investors to panic and sell Sterling.

As a result, news that a UK-EU summit to finalise the deal had been announced took a backseat for markets.

South African Rand (ZAR) Capitalises on Weak Sterling amid Risk Rally

A stronger South African Rand (ZAR) easily gained against a plummeting Pound (GBP) on Thursday morning as investors sought out high-yield emerging market currencies.

Despite the broad Brexit uncertainties, investors have been more willing to take risks in recent sessions due to signs that the US and China could be closer to seeing productive talks on trade.

One of the primary causes of risk-aversion in 2018 has been escalating trade tensions between the US and China, so any signs that the nations are taking steps to de-escalate those tensions typically bolsters risk-sentiment.

Other global factors, including speculation that the US economy could slow in 2019, as well as lower prices of oil, made the South African Rand more appealing.

This was despite Wednesday’s South African data generally disappointing. South African retail sales contracted -0.6% month-on-month in September while the yearly figure slipped to just 0.7%.

Pound to South African Rand (GBP/ZAR) Exchange Rate Uncertainty Surges

A day after a UK-EU deal was finally reached, Brexit jitters surged once again as top UK officials resigned from UK Prime Minister Theresa May’s government.

Market fears that Theresa May could lose a hold of her leadership also caused panic that the Brexit deal could fall apart and lead to a ‘no-deal’ Brexit.

The Pound will remain increasingly volatile to Brexit developments going forwards.

If the Prime Minister faces a leadership challenge or the Brexit bill ends up failing, the Pound to South African Rand (GBP/ZAR) exchange rate could continue to plunge.

On the other hand, if domestic jitters cool and there are no further shocks to the UK government, the Pound could steady and investors will hope the UK-EU Brexit deal could be confirmed.

These political developments will cause significant movement in Sterling (GBP), while the South African Rand will likely react to shifts in risk-sentiment.

Next week’s South African inflation data and South African Reserve Bank (SARB) policy decision may also influence the GBP/ZAR exchange rate.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard