The Pound has made rapid gains against the Rand recently, climbing from 16.77 to 17.31 over April 2nd to April 4th.
While ZAR weakness has enabled these gains, the Pound may drop if it looks like ‘hard Brexit’ is unavoidable.
So-called because it could cause more economic damage than ‘soft Brexit’, the prospect of hard Brexit has been growing recently.
Focusing on the issue, ING economists have forecast;
‘While both sides will start Brexit negotiations seeking [to] minimise economic damage and hopefully generate positive results for their respective electorates, things could go very badly. The political backdrop means [that] in the UK’s case, uncertainty could see more corporates choosing to sit on their hands rather than investing in their businesses.
British households could also become more cautious, leading to a sharper slowdown in activity. Should Sterling come under further pressure due to Brexit worries, then inflation will stay higher for longer, squeezing spending power in the economy. Even worse, if there is electoral success for anti-EU parties, the prospect of EU break-up could return’.
Given that the EU is still expected to be a major trading partner after the UK leaves the EU, a crash in the UK and EU is only expected to devalue the Pound and cause GBP ZAR losses.
Future shifts for the Rand are likely on any imminent changes to President Jacob Zuma’s position in government.
Zuma has recently reinforced his controversial reputation by firing Finance Minister Pravin Gordhan. This itself echoed an incident in 2015 when established Finance Minister Nhlanhla Nene was replaced with David van Rooyen, who was himself swapped for Gordhan in a matter of days.
This latest cabinet purge has brought waves of criticism down on Zuma and more damagingly has led ratings agency Standard & Poor’s to cut South Africa’s credit rating to ‘junk’ status.
The Rand has accordingly tumbled against the Pound on this news.
Among those calling for Zuma’s resignation have been former President Kgalema Motlanthe, the Congress of South African Trade Unions (COSATU), and the Integrity Commission of the African National Congress (ANC), Zuma’s own party.
Zuma has previously survived countless corruption allegations and votes of no confidence, but the latest economic damage caused may be the last straw.
If Zuma is finally ousted from government by a vote or resigns, the Rand could rally to an unprecedented level. Should Zuma remain entrenched as President for the foreseeable future, however, then the Rand could only fall further in the GBP ZAR exchange rate.
Recent Interbank GBP ZAR Exchange Rates
At the time of writing, the Pound to South African Rand (GBP ZAR) exchange rate was trading at 17.15 and the South African Rand to Pound (ZAR GBP) exchange rate was trading at 0.05.
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