Fears that Scotland will break away from the United Kingdom are causing the GBP ZAR exchange rate to sink today, but the political outlook for South Africa could provide a reason for investors to return to Sterling.
The Pound’s fall against the Rand comes after reports that Theresa May is bracing for Scotland to request a second independence referendum.
She could refuse and provoke ire from voters across the nation, or agree and risk pro-EU Scottish voters rallying behind a ‘Leave’ vote in the hope that Scotland will then be allowed to join the European Union as a member in its own right.
It is expected that SNP leader Nicola Sturgeon will lodge her demand for a second referendum shortly after Theresa May has invoked Article 50 next month.
The Pound may therefore find itself becoming somewhat decoupled from domestic data as political developments take precedent in the minds of traders.
That being said, it is unlikely this week’s Markit PMIs will be overlooked, especially considering data has already indicated that activity in the dominant services sector may be waning. If Friday’s services PMI were indeed to show slowing growth, the Pound could be in for a marked slide against the Rand.
However, South African’s turbulent and murky politics could distract investors from the issues facing the UK to some extent. President Jacob Zuma’s ongoing battle with Finance Minister Pravin Gordhan has now embroiled the Deputy Finance Minister Mcebisi Jonas.
Rumours are circulating that the elite Hawks police unit is investigating Jonas on claims he used his political influence to secure work for a US aircraft firm from South African Airways.
A spokesperson from the Hawks has denied that there is an investigation into Jonas, however, commenting that ‘for now that investigation is still at an enquiry level and once we pick up anything then a case docket will then be opened. There is not even a case docket.’
However, this has not settled fears that South African politics could be set for another messy episode, especially given the recent rumours that Zuma could be planning another cabinet reshuffle, with Gordhan potentially in the firing line.
Gordhan returned to the role of Finance Minister just a couple of years after leaving, when Zuma disastrously attempted to replace Nhlanhla Nene with unknown politician David van Rooyen.
Nene was a popular minister, well-regarded for his economic stewardship. He was known for standing up to Zuma in an attempt to curb the government’s excessive spending in order to repair the public budget. Faced with widespread backlash to his dismissal, Zuma was forced to replace van Rooyen with Gordhan – who, like Nene, is well-respected for his economic acumen – after just a few days.
However, the targeting of Jonas and rumours Zuma is so frustrated with Gordhan he no longer cares if firing him causes a significant backlash, have raised investor fears that South Africa’s fragile economy could be rocked if a less-capable steward is appointed, especially if they are someone who enables Zuma to continue with his lavish spending.
This is likely to weigh on the South African Rand in the coming days, unless there are strong signs that the cabinet as it stands will remain. Therefore both the Pound and Rand are likely to be shaken by a weakening economic outlook, although strong domestic data could do more to support GBP than it would ZAR.
At the time of writing the Pound South African Rand exchange rate was trading at around 16.08.
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