Pound to South African Rand Surges despite Strong South African Data
While sturdier earlier in the week, the South African Rand (ZAR) has slumped since yesterday and this has made it easier for the Pound Sterling to South African Rand (GBP/ZAR) exchange rate to surge to its best levels all year.
After opening this week at the level of 18.79, GBP/ZAR briefly saw mixed movement as both currencies were volatile.
However, UK Parliament’s rejection of a no-deal Brexit combined with fresh market risk-aversion and other factors weighing on the Rand left GBP/ZAR soaring yesterday.
GBP/ZAR touched a 2019 high of 19.24 overnight and trended close to the level of 19.15 at the time of writing today.
This was despite this week’s South African data generally beating market expectations.
Pound (GBP) Exchange Rate Outlook Strengthens as Markets Bet Against No-Deal Brexit
An unexpectedly strong rejection of the option of a no-deal Brexit from UK Parliament’s votes yesterday left investors betting that a no-deal Brexit would not happen and that Britain would instead find some other way to proceed with Brexit.
Throughout Wednesday’s session, investors bought the Pound on expectations that Parliament would vote against no-deal Brexit.
However, during the votes MPs unexpectedly voted in favour of an amendment aiming to prevent the UK from seeking a no-deal Brexit under any condition.
As the amendment passed, it was attached to the main motion.
Hesitant to have power over the Brexit process taken away, Prime Minister Theresa May whipped Conservative Party MPs to vote against it – but multiple Conservatives defied the whip and the motion passed.
It meant that not only would the UK not aim for a no-deal Brexit at any point, but also indicated that Prime Minister May’s authority over the process was diminishing.
Sterling surged in response to the news, largely due to expectations that a no-deal Brexit was now highly unlikely.
South African Rand (ZAR) Exchange Rates Plunges on Risk-Aversion
While the Pound benefitted strongly from the latest Brexit developments, the unpredictable and chaotic nature of this week’s Brexit news has left investors hesitant to take risks.
This has meant that risky emerging market currencies like the South African Rand (ZAR) have been unappealing over recent sessions. The unpredictable nature of this week’s Brexit news is one of the primary reasons of South African Rand weakness since yesterday.
Other factors are weighing on the Rand’s appeal though, such as news that Eskom, South Africa’s state power firm, would be cutting electricity again.
Due to Brexit jitters and power outage concerns, the South African Rand was unable to benefit from this week’s fairly solid South African ecostats.
Wednesday’s South African business confidence report slipped to 28, but South African mining production contracted less than expected in January according to this morning’s data.
Pound to South African Rand (GBP/ZAR) Exchange Rate Outlook Depends on Brexit Developments
The Pound outlook has already changed notably this week, as Parliament decisively voted against the government’s Brexit plan again and went on to vote a strong rejection of a no-deal Brexit.
With so much of UK Parliament so strongly against a no-deal Brexit, markets are betting that officials will actively avoid a no-deal Brexit and that the Brexit process will eventually end with some kind of deal.
This has been hugely bullish for the Pound outlook and as a result Sterling could have an easier time sustaining its recent gains even going forward.
Today’s Parliament vote on whether or not to delay the Brexit process is likely to be successful, and could offer the Pound outlook some stronger support.
As for the South African Rand, with the Brexit outlook still filled with uncertainty despite a no-deal Brexit looking less likely, investors may remain hesitant to take risks. This could leave the South African Rand unappealing.
As well as continued Brexit news, next Wednesday’s South African inflation rate data could also influence the Pound to South African Rand (GBP/ZAR) exchange rate outlook if it surprises.