GBP/ZAR Exchange Rate Strikes Six-Week Low on Brexit Woes

The Pound to South African Rand (GBP/ZAR) exchange rate fell off a cliff last week, in response to flaring Brexit tensions between the UK and EU.

Last Week: Pound Battered as Boris Johnson’s Internal Markets Bill Angers EU

The Pound was met by a sharp sell-off through last week’s session, after Boris Johnson proposed a new bill which would override part of the EU withdrawal agreement.

The internal market bill was accused of ‘breaking international law’ and unsurprisingly infuriated the EU, who issued an ultimatum to the UK government to ditch the bill by the end of the month or risk jeopardising trade talks.

The stark rise in tensions has greatly increased the risk that the UK is headed towards a no-deal Brexit, the threat of which drove Sterling into a nosedive last week.

While the South African Rand was able to shoot higher against a weakened Pound last week, it struggled to replicate this success against its other currency peers in light of some abysmal GDP figures.

This saw ZAR exchange rates tumble as South Africa reported a staggering 51% contraction of growth in the second quarter.

Three Things to Watch out for This Week

1. Brexit Developments

The Pound is likely to remain highly sensitive to any headlines pertaining to Brexit this week, with Sterling vulnerable to additional losses so long as Boris Johnson maintains his hardline stance against the EU.

2. BoE Rate Decision

Also set to influence GBP exchange rates this week will be the Bank of England’s latest policy decision, with GBP investors on the lookout for any mention of negative interest rates.

3. SARB Rate Decision

In the spotlight for ZAR investors this week will be the South African Reserve Bank’s (SARB) own rate decision. While no policy changes are expected this month, some overtures to future rate cuts in light of South Africa’s dismal GDP figures could exert some pressure on the Rand

GBP/ZAR Outlook

Looking ahead, the GBP/ZAR exchange rate may continue to trade in a wide range this week as Brexit and coronavirus uncertainty likely continue to infuse fresh volatility into the pairing.

Matthew Andrews

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