Increasing Risk of No-Deal Brexit Drives Down Pound Sterling South African Rand (GBP/ZAR) Exchange Rate
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate remained in decline this morning as market anxiety over Brexit reignited.
As Conservative leadership candidate Boris Johnson repeated his pledge that the UK will leave the EU in October with or without a deal this naturally spooked investors, driving Pound Sterling (GBP) lower across the board.
With the UK economy already showing signs of slowing in the face of Brexit-based anxiety and uncertainty the prospect of a no-deal scenario weighed heavily on GBP exchange rates.
Further volatility followed as the Labour Party issued a fresh call for the issue to be put back to the people in a second referendum, with markets still weighing up the odds of the UK facing another general election.
As June’s British Retail Consortium (BRC) like-for-like sales data also disappointed overnight this added to the bearish mood of the GBP/ZAR exchange rate.
GBP/ZAR Exchange Rate Vulnerable to Softening UK Growth
Demand for the Pound could diminish further tomorrow if the latest set of UK gross domestic product data points towards a slowdown in growth.
Forecasts suggest that the economy posted growth of just 0.1% in the three months to May, raising the odds of a weak second quarter reading.
Even if the monthly growth rate shows an improvement this may not be enough to prevent GBP exchange rates from recovering much ground, though.
Investors will need to see signs of greater resilience across the economy before the appeal of the Pound experiences a meaningful improvement.
However, if May’s industrial and manufacturing production figures show a solid rebound on the month this may encourage the GBP/ZAR exchange rate to trend higher in the near term.
Weaker Manufacturing Production May Dent South African Rand (ZAR)
The mood towards the South African Rand (ZAR), meanwhile, could deteriorate on Thursday with the release of the latest South African mining and manufacturing production data.
Fresh evidence of a contraction in output would expose ZAR exchange rates to a renewed bout of selling pressure, given existing worries over the current economic outlook.
As long as the South African economy continues to demonstrate signs of weakness markets are unlikely to find much incentive to buy into the Rand.
If manufacturing production falls sharply on the month as forecast this may offer the GBP/ZAR exchange rate a boost, especially if global market risk appetite also deteriorates.
Politics to Cast Shadow Over Pound Sterling (GBP) Outlook
Political developments look set to drive further volatility for the Pound in the days ahead, with markets still lacking clarity over the UK’s future.
Even if the pushback against a no-deal Brexit persists the risk of Boris Johnson proroguing Parliament in order to force an exit at the end of October could continue to weigh on Pound sentiment.
The increasing odds of a potential general election may also limit the potential for GBP exchange rate gains, even though a change in government may reduce the risk of Brexit.
As long as a sense of clarity over the economic outlook remains this may keep the GBP/ZAR exchange rate biased to the downside.