GBP/ZAR Exchange Rate Mixed on UK Political Turmoil
The Pound South African Rand (GBP/ZAR) exchange rate was hit by considerable volatility last week as political uncertainty in the UK ran rampant.
This was kicked off by Theresa May’s decision to delay a parliamentary vote on her Brexit deal on Monday as she conceded that the deal was unlikely to make it through the Commons.
However this was just the start of what would be a gruelling week for May as it was swiftly followed by Conservative MP’s launching a vote of no-confidence in their leader.
While May ultimately survived the vote, she was granted little time to savour her victory as she headed to an EU summit on Thursday where she would unsuccessfully attempt to convince EU leaders to grant her ‘legal assurances’ on the post-Brexit Irish backstop proposal, leading Sterling to weaken against some of its peers.
However this was offset by some notable weakness in the Rand in the latter half of the week as some lacklustre data triggered concerns over a slowdown in China and leading to a sharp drop in risk-appetite.
Pound Rand (GBP/ZAR) Exchange Rate Slips Ahead of Fed Rate Decision
The Pound (GBP) is on the defensive against the South African Rand (ZAR) this morning as the currency was given a leg up by a drop in the US Dollar (USD).
This comes in the build up to tomorrow’s Federal Reserve rate decision, which is widely expected to see the US central bank hike interest rates for a fourth time in 2018, but then strike a more dovish tone on additional hikes in 2019.
This has led some investors to shun the ‘Greenback’, with demand filtering down to risk-sensitive currencies such as the Rand instead.
GBP/ZAR Exchange Rate Forecast: BoE Forward Guidance in the Spotlight
Looking ahead, movement in the Pound South African Rand (GBP/ZAR) exchange rate is likely to be dominated by the Bank of England’s (BoE) latest rate decision on Thursday.
The impact on Sterling will ultimately depend on the BoE’s forward guidance for 2019 and whether it may be preparing to ramp up the pace of rate hikes.
While the recent uptrend in wage growth would suggest this is possible, the uncertainty over Brexit is likely to give the bank some pause, potentially resulting in a neutral outlook and weakening Sterling sentiment.
In the meantime the release of the UK’s latest CPI figures on Wednesday is also likely to drive movement in GBP exchange rates this week, with an expected dip in inflation likely to drag on the Pound.
In terms of the Rand, a lull in domestic data means that risk appetite will likely remain the main catalyst for movement in the currency, with a potential drop in the US Dollar (USD) following Wednesday’s Fed rate decision potentially leading investors to go risk-on.