Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Slides on US-China Optimism
The Pound Sterling South African Rand (GBP/ZAR) exchange rate slumped as hopes for a US-China trade deal increased, leaving the pairing trading at around R19.0298.
The South African Rand rose against GBP on Friday as a fresh upswing in US-China trade optimism buoyed risk appetite amongst investors.
Comments from the White House suggested Washington and Beijing were close to reaching a deal, and signing the highly anticipated ‘Phase One’ agreement.
White House economic adviser, Larry Kudlow said that the pair were getting close to a deal, and while offering no new details added that the ‘mood music is pretty good’.
Commenting on this, Siobhan Redford, RMB analyst wrote in a note:
‘We have been speaking about trade tensions and trade negotiations for what feels like forever. And yet, it continues to be an important factor, one that influences market movements on a daily basis. Today is no different.
‘We see Asian markets trading in positive territory […] this bodes well for the trading session domestically and is likely to support the Rand at current levels.’
Sterling (GBP) Slumps as UK Election Optimism Distracts from Wider Market Pessimism
The Pound slumped at the end of the week as the rally sparked from Brexit Party Leader, Nigel Farage’s comments faded.
Farage said his party would not contest the 317 Conservative seats won in the previous general election.
Sterling edged higher as this could lead the way for Boris Johnson to secure a Tory majority in December.
Commenting on this, senior currency strategist at Nordea, Morten Lund said:
‘The Brexit Party is standing down in some seats. If they throw in the towel on more seats that would be positive for Sterling and support the narrative that a no-deal Brexit is unlikely.’
However, the upswing of UK election optimism could be distracting from wider market pessimism about the British currency’s long-term outlook.
The country will only have 11 months to negotiate a trade agreement with the European Union, which weighed on GBP.
Commenting on this BNY Mellon’s senior currency strategist, Neil Mellor said:
‘My concern is – and this is something possibly the market has thought about – that we’ve got preoccupied with the election but there is still a lot of uncertainty post-election.’
Pound South African Rand Outlook: Will Weak South African Inflation Weigh on ZAR?
Looking ahead, it is likely the South African Rand (ZAR) will extend gains against the Pound (GBP) following reports on US-China trade negotiations.
If negotiations continue to progress smoothly, and they are closer to reaching a deal, increased risk appetite will likely buoy the Rand.
Meanwhile, investors are likely to focus on Wednesday’s South African inflation data which could limit any gains from increased risk appetite.
If inflation continues to remain below the South African Reserve Bank’s (SARB) target of 6%, it is likely the Pound South African Rand (GBP/ZAR) exchange rate will edge up.