‘Very Real Prospect’ of No-Deal Brexit Causes Pound Sterling South African Rand (GBP/ZAR) Exchange Rate to Slide

Pound South African Rand (GBP/ZAR) Exchange Rate Plummets, Government ‘Working on the Assumption’ of a No-Deal Brexit

The Pound Sterling South African Rand (GBP/ZAR) exchange rate has slumped today, taking the pairing to an inter-bank rate of R17.5636.

On Sunday Michael Gove stated that the government is now ‘working on the assumption’ of a no-deal Brexit.

Writing in the Sunday Times, Gove stated that while the government still aims to reach an agreement with Brussels, a ‘no deal is now a very real prospect’.

Added to this, treasury sources have said they expect more than £1 billion worth of extra funding to be available later in the week for no-deal preparations.

This fresh bout of Brexit pessimism weighed on Sterling and caused the UK currency to slide against a handful of currencies, including the Rand.

Against the US Dollar, the Pound slumped to its lowest level since March 2017.

South African Rand (ZAR) Exchange Rates Rise, Fed Expected to Cut Rates

Meanwhile, the South African Rand edged up against Sterling despite concerns over trade talks and the upcoming Federal Reserve meeting.

This week, US policymakers are expected to cut interest rates for the first time in a decade.

On Sunday night, former Fed Chair Janet Yellen said she supported a 25 basis point cut.

Speaking at an Aspen Economic Strategy Group Meeting, Yellen said:

‘The global economy has weakened. I think partly it’s weakened because of conflicts over trade and the uncertainty that’s caused for businesses.’

She also added that US inflation remains too low, and further stated:

‘I think in light of the risks, I would be inclined to cut a bit. I wouldn’t see this as the beginning, unless things change, of a major easing cycle. But I do think it’s appropriate.’

ZAR Rises despite Fitch Downgrading Outlook for South Africa to Negative

At the end of last week ratings agency Fitch downgraded its outlook for South Africa from stable to negative.

Fitch stated it was concerned with the country’s overall growth potential and the huge sums being allocated to the struggling Eskom was affecting the country’s debt.

Meanwhile, this week economists will monitor Moody’s, the last of the big three agencies to keep the Rand at investment grade.

Commenting on this, Chief Economist at the Efficient Group Dawie Roodt said:

‘The real surprise is that Moody’s hasn’t downgraded South Africa yet. I think the reason why the financial markets reacted the way they did is simply because it underlines the possibility of Moody’s downgrading South Africa.’

Pound South African Rand (GBP/ZAR) Exchange Rate Outlook: Better than Expected Unemployment to Buoy ZAR?

Meanwhile, looking ahead to Tuesday, the South African Rand (ZAR) could edge up against the Pound (GBP) following South Africa’s unemployment data.

If unemployment edges lower than expected during the second quarter of 2019, it could weigh on the Rand.

Meanwhile, the upcoming US-China trade talks could leave the Rand under pressure.

Expectations for a breakthrough during in-person talks in Shanghai are low, which may see the Pound South African Rand (GBP/ZAR) exchange rate edge up.

Millie Empson

Contact Millie Empson