- Pound (GBP) Drops as ‘Leave’ Camp Support Increases – ‘Brexit’ fears rise once again
- UK Data Disappoints – House data worsens, Manufacturing PMI unable to buoy Pound
- Rand (ZAR) Strengthens on Risk – Short rally despite credit rating jitters
- Forecast: UK PMIs Due – S&P reviewing South African credit rating on Friday
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate dropped considerably on Tuesday as risk sentiment soared and the Pound was pressured by new ‘Brexit’ polls revealing a strengthening ‘Leave’ campaign, causing uncertainty for the Pound’s future.
GBP/ZAR briefly trended above 23.00 on Monday and Tuesday as the Pound’s previous strength looked to continue, but plummeted to around 22.7572 on Tuesday afternoon. On Wednesday, the pair dropped further and trended in the region of 22.5000 at the time of writing.
Sterling (GBP) Slumps from Highs as Polls Reveal ‘Leave’ Strength
The Pound’s previously bullish movement was largely reversed on Tuesday due to underwhelming UK news and a sudden shift in the perceived popularity of ‘Brexit’ campaigns.
According to a report from The Guardian, polls which previously favoured ‘Remain’ now lean towards ‘Leave’ due to an increased focus on immigration rhetoric in EU referendum debates.
‘In the phone poll of more than 1,000 adults, 45% said they favoured leaving the EU, and 42% remaining, with 13% saying they did not know. Once the “don’t knows” were excluded, that left 52% in favour of Brexit, against 48% for remain.
Using online polling, 47% said they would like to leave and 44% remain, with 9% saying they were undecided. Excluding the latter, the result was the same as the phone method – 52-48 in favour of leaving.
The result using the online method is almost unchanged, but the phone polling appears to be picking up a shift towards leaving the EU, despite a slew of warnings from the most senior members of the government about the economic risks of doing so.’
Britain’s economic calendar has been relatively quiet this week, following the Monday bank holiday. However, a data slew released on Wednesday morning did little to inspire confidence as concerns for the future of the British economy resurfaced.
Nationwide’s latest house price report disappointed by dropping from 4.9% to 4.7% year-on-year. British mortgage approvals worsened more-than-expected, from 70.3k to 66.3k. Consumer credit also undermined expectations, falling from 1.8b to 1.3b.
Meanwhile, Markit’s latest British Manufacturing PMI failed to slow the Pound’s descent despite unexpectedly escaping contraction. The expected score was 49.6, but it instead improved from 49.4 to 50.1.
South African Rand (ZAR) Climbs on Risk-Sentiment Despite Credit Rating Jitters
The South African Rand appeared to be enjoying a short bout of strength on Wednesday as the appeal of risky currencies soared.
The ‘safe-haven’ US Dollar’s rally calmed due to investor concerns that a June Federal Reserve rate hike was still unlikely, which left riskier currencies like the Rand stronger. News that Australia’s growth had been far higher-than-expected in Q1 also bolstered risk-on movements across the board.
The Rand was additionally boosted by data released on Tuesday. South Africa’s latest trade surplus report revealed that the figure had remained positive, despite many analysts expecting it to worsen to -1.7b.
Bloomberg reports;
‘The surplus should add support to the currency, according to Elna Moolman, an economist at Macquarie Group Ltd.
The trade surplus is “to some extent a reaction to rand weakness,” Moolman said by phone from Johannesburg on Tuesday. “Looking at the general trend, which has improved, it should be positive for the Rand.”’
However, not all news was positive for the Rand as the latest South African Manufacturing PMI let down forecasts by slowing from 54.9 to 51.9. It was expected to slip to around 53.4.
Investors also remain wary of the Rand ahead of the Standard & Poor’s (S&P) South African credit rating review, which will take place on Friday.
Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Forecast: UK PMI, SA S&P Review Ahead
The Pound could look to recover some of this week’s losses on Friday if South Africa’s Standard & Poor’s (S&P) credit rating is downgraded as some analysts fear.
Many economists currently expect that the S&P will downgrade South Africa’s credit rating to ‘junk’ due to political instability undermining the strength of the South African economy.
However, Sterling may fare little better if ‘Brexit’ bets continue to flow in favour of the ‘Leave’ campaign. If the ‘Leave’ camp’s immigration rhetoric strengthens and the chances of a ‘Brexit’ increase, the current pressure on the Pound is unlikely to let up.
The only British dataset due for release on Thursday is the key Construction PMI print, which is expected to remain at 52.0.
Friday’s session will see the release of UK Services PMI, alongside the overall Composite print. South African data will be relatively light, with Standard Bank PMI due on Friday morning.
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate currently trends in the region of 22.5000, while the South African Rand to Pound Sterling (ZAR/GBP) exchange rate trades at around 0.04446.
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