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Pound Bolsters Gains against South African Rand (GBP/ZAR) as SA Awaits Moody’s Rating Decision

Pound Maintains its Rise against the Rand after a Week of Gains as Finance Minister Asks to be Sacked

The South African Rand (ZAR) weakened over 0.5% against the Pound (GBP) last week due to falling risk appetite based on a mixture of Italian debts fears, a struggling Chinese economy and broad-based US Dollar strength.

Today Sterling has managed to hold onto those gains and is currently trading up by about 0.25% against the Rand.

This latest upsurge in the GBP/ZAR exchange rate comes after South Africa’s Finance Minister Nhlanhla Nene asked Prime Minster Cyril Ramaphosa to fire him.

Mr Nene’s unusual request comes after giving testimony in a corruption enquiry, fearing that his continued presence in government would have a damaging effect on confidence in the South African economy.

ZAR/GBP Exchange Rate Reacts to UK’s Brexit Sentiment Rollercoaster

Last week may have been a tough one for the South African Rand (ZAR) with the currency slipping over the week, but this week could see something of a reversal if there are any Brexit upsets in negotiations between the UK and the EU.

At present, markets are optimistic after reports emerged last week of a potential deal between the EU and the UK that could be agreed ‘in weeks’ and would resolve the issue of how the border between the Republic of Ireland and Northern Ireland would operate after the UK leaves the EU.

This gave Sterling a considerable boost against ZAR, with markets anticipating the real prospect of a deal in the near term.

Whether this sentiment continues into this week remains to be seen, with ZAR/GBP likely to benefit if it appears negotiations have hit another stumbling block.

Looking Ahead: GBP/ZAR Hinges on Moody’s Credit Revelation on Friday

In a week of very few data releases, looking ahead the main driver of the GBP/ZAR exchange rate will come on Friday when ratings agency Moody’s reconsiders South Africa’s credit rating.

If the agency downgrades their rating to junk status there will likely be a spike in bond yields as funds flow out of the country, with the Rand liable to lose a substantial amount of value in the process.

The threat comes after South Africa slipped into recession in the second quarter and the Rand has been fighting to retain value against other currencies amidst a broader emerging market rout.

However, with Prime Minister Cyril Ramaphosa’s recent economic stimulus plan in the spotlight, investors consider the odds of there being a credit downgrade to be slim.

Instead, GBP/ZAR could be driven by political consideration much further to the north, as the EU and UK thrash out the final details of any Brexit agreement ahead of the EU summit on the 18th and 19th October.

The only data of note to be released this week for the UK will come in the form of the monthly GDP release for August.

At present this is expected to show only a small rise, of o.1%, which would indicate slowing growth across the British economy.

If this figure matches forecasts then we can expect to see GBP losing some of the gains it has made against ZAR over the last week.