The Pound South African Rand (GBP/ZAR) exchange rate has surged to a three-month high as violent unrest in South Africa caused the Rand to slump.
What’s Been Happening: GBP/ZAR Surges as Violence Erupts in South Africa
For most of last week the Pound South African Rand pair traded in a narrow range, with the latter trending slightly higher as prices for gold, platinum and iron increased, boosting the commodity-linked currency.
However, ZAR slumped as violence erupted in South African’s two most densely populated provinces on Sunday evening, following the jailing of ex-president Jacob Zuma on corruption charges. Some supporters of Zuma, a former anti-apartheid fighter, began rioting and looting in response to what they see as an unfair ruling.
Violent clashes with police and between citizens have led to at least ten deaths and 750 arrests so far. President Cyril Ramaphosa has deployed the military to quell the unrest, which has seen the South African Rand tumble to a three-month low against the Pound.
Sterling, on the other hand, was fairly subdued for most of the week, with UK data releases thin on the ground. Optimism about the reopening of the UK economy was offset by fears of rising coronavirus cases and a flare-up of Brexit tensions.
The Pound found some support on Friday, with the UK nearing its 19 July lockdown-lifting date. But with Boris Johnson emphasising caution as he addressed the UK yesterday, the upside of reopening optimism may have been limited somewhat.
Three Things to Watch Out for This Week
- South Africa Unrest
With the military now deployed, hopefully the violence will soon end. However, even if peace is restored fairly quickly, the riots may have accelerated the spread of the third wave of coronavirus and disrupted the country’s vaccination programme. If so, ZAR may struggle to recover.
- UK Inflation Rate
The latest inflation rate figure from the UK is forecast to show a slight rise in inflation, from 2.1% to 2.2%. If the results meet or beat expectations, this could boost the Pound. But if inflation prints below predictions, it may add to the worries that the UK’s economic recovery is slowing down.
- UK Employment Data
Employment data from the UK towards the end of this week could also support Sterling, with jobless benefits claims expected to drop and average earnings expected to jump by 7.1%.
South Africa is now in the grip of violent unrest and a third wave of the virus, so it is unlikely the Rand will recover soon. Meanwhile, the UK approaches its reopening date, albeit it cautiously, and positive data is expected in the upcoming days. As such, the Pound South African Rand exchange rate could strengthen further over the next week.