Pound (GBP) Exchange Rates Strengthen as Carney Remains Upbeat on Brexit Deal
The Pound (GBP) is rallying against the South African Rand (ZAR) this morning as GBP investors welcomed Mark Carney’s upbeat assessment of the draft Brexit deal.
The Bank of England (BoE) Governor, speaking before the Treasury Committee as the bank’s inflation hearing looked to emphasised the importance of leaving the EU with a deal and said he would ‘expect’ the agreement to ‘support economic outcomes’.
Questioned on whether he was still confident that the UK would avoid a no-deal Brexit, Carney said ‘We’re going to find out relatively soon,’ but stated that the BoE has been preparing for such an eventually since June 2016.
Also speaking at the hearing, BoE Chief Economist Andy Haldane warned that it is important that a deal is finalised quickly as Brexit uncertainty continues to stifle the economy, indicating this is likely to lead to growth being ‘somewhat weaker’ in the fourth quarter.
GBP/ZAR Exchange Rate Rallies after Steep Losses Following Brexit Chaos
The Pound South African Rand (GBP/ZAR) exchange rate fell sharply last week, with the pairing dropping to a three-week low as Sterling sentiment was battered after two senior Cabinet members resigned in protest at a draft withdrawal agreement between the UK and EU.
Both Brexit Secretary Dominic Raab and Work and Pensions Secretary Esther McVey announced their resignations last Thursday, driving heavy losses in GBP exchange rates with UK politics quickly descending into chaos as Rebel MPs sought to mount a vote of no-confidence in the prime minister.
The resulting turmoil prompted renewed concerns over Theresa May’s leadership prospects and erased the Pound’s gains from earlier in the week on the back of some robust UK wage growth figures.
Meanwhile apart from a small setback following a dip in domestic retail sales, the South African Rand enjoyed broad gains last week as it led an emerging market rally thanks to the political chaos in Europe and some softer-than-expected US inflation figures.
GBP/ZAR Exchange Rate Outlook: SARB to Hike Rates this Week?
Looking ahead to the remainder of this week’s session, the Pound South African Rand (GBP/ZAR) exchange rate may face some pressure amid speculation the South African Reserve Bank (SARB) could raise interest rates this week.
While previous forecasts suggested the SARB would leave rates on hold this week, economists appear to have shifted their expectations in recent days, potentially opening the door for the Rand to push higher so long as it isn’t bogged down by trade concerns.
Elisabeth Andreae, analyst at Commerzbank explains:
‘Markets have only partially priced in an interest rate hike and if the SARB delivers, the Rand is likely to appreciate. However, the Rand’s vulnerability to global and domestic risks should limit the appreciation.’
Meanwhile, in the absence of any notable UK data, political sentiment is likely to continue to dictate movement in the GBP/ZAR exchange rate this week, with Sterling likely to rise if calls for a no-confidence motion fizzle out.