The Pound South African Rand exchange rate plunged on Tuesday. Sterling failed to hold its ground after Northern Ireland’s DUP Party blocked the latest progress in Brexit negotiations, while the Rand benefitted from hopes for a business-friendly leader of South Africa’s ruling ANC Party.
While Sterling advanced against most currency rivals last week, GBP ZAR dropped from 18.90 to 18.49 last week due to developments in the ANC leadership. The pair tumbled to around 18.10 on Tuesday.
Pound (GBP) Outlook Weighed by Uncertainty in Brexit Talks
The Pound saw volatile movement on Monday as negotiators appeared close to reaching agreement on the first phase of UK-EU Brexit talks – but no agreement was reached in the end.
Sterling strengthened earlier in the session with UK and EU negotiators optimistic that a deal on the terms of Brexit divorce could be made, but towards the end of the day objections were raised by Northern Ireland’s DUP Party.
The UK government had proposed that Northern Ireland continues to follow EU laws post-Brexit, allowing it to maintain a soft border with Ireland. However, the DUP wishes for Northern Ireland to be treated the same as other UK nations, causing disagreement.
UK and EU negotiators are optimistic that a deal can be reached within the coming days, but markets sold the Pound from its highs regardless.
The Sterling selloff continued on Tuesday as investors became concerned that if there is no deal on the Irish border within the next week, negotiations could be delayed well into 2018.
This would significantly delay the second round of talks, which are likely to include trade discussions. If trade negotiations are delayed this would worsen ‘hard Brexit’ fears.
On top of this, Britain’s latest services PMI data from Markit was disappointing.
Markit’s services PMI was expected to be solid after manufacturing and construction PMIs beat expectations, but the services print fell short of expectations and came in at just 53.8. It was forecast to slip just slightly from 55.6 to 55.
This weighed on Sterling slightly, but investor focus remains on the Brexit process and Brexit developments are highly likely to drive movement in the Pound for most of this month too.
If the UK and EU are able to reach an agreement on the Irish border within the coming days, the Pound South African Rand exchange rate may recover much of its recent losses.
However, if no deal is reached by the time of the EU summit on the 14th of December, the Pound outlook could plummet as ‘hard Brexit’ fears would return.
South African Rand (ZAR) Surges on Hopes for Ramaphosa Victory
In recent weeks, Deputy President Cyril Ramaphosa has emerged as a market favourite to win the upcoming African National Congress (ANC) leadership race.
December will see the ANC decide the party’s leader to South Africa President Jacob Zuma. The ANC leader would be well positioned to become South Africa’s next President in 2019.
As Ramaphosa is seen as a business-friendly candidate and has been critical of state corruption, his popularity has been highly reassuring to investors and has been the primary cause of strong South African Rand (ZAR) gains in recent weeks.
The Rand was strong enough last week to even push down a strong Pound.
On Tuesday it seemed like Ramaphosa had a decent lead in the party race, as he took the lead in five of South Africa’s nine provinces among ANC party branches.
The Rand was supported further on Tuesday by news that South Africa’s Q3 Gross Domestic Product (GDP) results had beaten expectations quarter-on-quarter, with a result of 2%.
However, his rival Nkosazana Dlamini-Zuma has also proven popular and has taken the lead in the two SA provinces with the ANC delegates.
As a result, uncertainty remains high. The outcome of the leadership contest is likely to be massively influential on the South African Rand outlook, and is likely to remain a focus in Rand trade in the coming weeks.
If Ramaphosa wins the contest, the Rand is likely to surge and this coupled with Brexit developments could make for a highly volatile December in Pound South African Rand trade.
GBP ZAR Interbank Rate
At the time of writing this article, the Pound South African Rand exchange rate trended in the region of 18.12. The Rand to Pound exchange rate traded at around 0.05515.