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GBP/ZAR Exchange Rate Skyrockets to One-Year High, South Africa Credit Rating to Lose Investment Grade?

South African Rand Currency Forecast

GBP/ZAR Exchange Rate Nosedives Following Grim Budget Projections

The Pound South African Rand (GBP/ZAR) exchange rate is currently reeling from its sharpest sell-off in over a year following bleak predictions for South Africa’s budget.

At the time of writing the GBP/ZAR exchange rate is currently trading at around ZAR19.6374, up by around 1.6% since the start of the European session.

South African Rand (ZAR) Faces Reckoning as Moody’s Rating Review Looms

The South African Rand (ZAR) remains in freefall this morning after Finance Minister Tito Mboweni’s medium-term budget made for some grim reading yesterday.

The Treasury’s latest forecasts suggest the South Africa budget deficit will reach 5.9% in the 2019/20 fiscal year, a significant revision from the 4.5% deficit predicted earlier in the year.

South Africa’s debt has rocketed in recent years, with repeated bailouts of cash-strapped state utility Eskom taking a heavy toll on the nation’s finances.

The ZAR sell-off also continues to gain pace ahead of Friday’s credit rating review by Moody’s.

Moody’s is the only rating agency which still deems South Africa’s credit rating to be investment grade, but this is increasingly in doubt in the face of the country’s economic woes and unsustainable debt pile.

Natalie Rivett, senior emerging-markets analyst at Informa Global Markets in London, comments:

‘This increase in debt under the weight of the Eskom bailouts, together with lingering uncertainty over Eskom debt restructuring and a weaker economic growth outlook means a revision of the rating outlook from Moody’s to negative is a strong possibility.’

While a ratings downgrade to ‘junk’ status this week may be a little premature, the Rand still looks poised to fall further as Moody’s revises its outlook lower.

Pound (GBP) Buoyed by Election Speculation, but are Gains Sustainable?

The Pound (GBP) is currently trending higher this morning, as the currency benefits from growing speculation that the Conservatives will come out on top in December’s general election.

In its first poll since the election was confirmed, YouGov placed the Tories 15 points ahead of Labour.

Alongside suggestions that the Brexit party may not contest all seats in order to avoid splitting the vote, GBP investors appear upbeat that the uncertainty of a hung parliament or Labour victory could be avoided.

However, many analysts warn such a volatile election is sure to kick up some fresh uncertainty in the coming weeks, potentially limiting the upside in Sterling.