Pound to South African Rand Exchange Rate Trends near Highs on Emerging Market Selloffs
Brexit uncertainties and ‘no deal’ Brexit fears haven’t prevented the Pound Sterling to South African Rand (GBP/ZAR) exchange rate from climbing to its best levels in over two years – due to a broad selloff of emerging market currencies.
Since opening this week at the level of 19.07, GBP/ZAR has climbed even higher thanks to the latest Brexit developments. On Wednesday, GBP/ZAR touched on a high of 20.08 – the pair’s best level since the month of the UK Brexit vote in 2016.
At the time of writing on Thursday, GBP/ZAR trended in the region of 19.85 again as emerging market currencies like the South African Rand (ZAR) attempted to recover from their worst levels.
However, thanks to the latest Brexit hopes the Pound (GBP) has done a better job of holding its ground and avoiding losses. As a result, the Pound to South African Rand exchange rate is on track to end the week over half a Rand higher.
Pound (GBP) Exchange Rates Benefit from Emerging Market Jitters Thanks to Brexit Speculation
The Pound more easily surged against riskier currencies from emerging markets this week, especially following Wednesday reports that officials from the UK and Germany had shown willingness to drop some of the most contentious topics from Brexit negotiations.
According to reports, German officials have indicated they would rather soften demands and accepted a vaguer Brexit plan, just to make sure some kind of UK-EU deal is reached.
Similarly, the report claimed that the UK was willing to be vaguer about its plans in hopes it would make a deal easier to achieve.
The report was enough to help the Pound to hit a new 2-year-high against the South African Rand, despite later concerns about how much impact these concessions would actually have. According to Neil Wilson, Chief Market Analyst at Markets.com:
‘Germany does not – despite its clear dominance of the bloc economically – actually speak for the EU position,
[Chief EU negotiator] Michel Barnier may well have something to say about this report. As might Theresa May,’
South African Rand (ZAR) Steadies as Emerging Market Selloff Cools
As an emerging market currency, the South African Rand (ZAR) has seen highly bearish performance over the past few weeks due to broad political concerns in some emerging markets.
Various factors keeping pressure on emerging market currencies include global political concerns and growth uncertainties, the strength of the US Dollar (USD) and expectations for a hawkish Federal Reserve, and persistent fears about US trade protectionism.
There is rising concern in markets that some emerging markets could be significantly impacted by US trade disputes, as well as concerns that global growth could slow.
Emerging market currencies, including the Rand, did edge higher on Thursday. However, the Rand’s gains versus a Brexit-boosted Pound were limited.
According to Kathleen Brooks from Capital Index, the emerging market selloff may actually have been overdone:
‘The fundamentals didn’t add up: we would firstly like to add a caveat that some EM assets are at risk from political and economic pressures (read Turkey), however justifying the ZAR [South African rand] sell off when SA’s current account deficit is lower than the UK’s right now isn’t a good investment decision.’
Other analysts, however, argue that emerging markets could continue to see pressure for some time to come.
Pound to South African Rand (GBP/ZAR) Forecast: Will Emerging Market Rebound Continue?
With markets expecting trade tensions between the US and China to worsen, Thursday’s limited emerging market recovery may be stopped short.
Investors may be even more hesitant to buy riskier currencies from emerging markets, like the South African Rand (ZAR), if global trade uncertainties intensify.
Amid a lack of notable data from the UK or South Africa due for publication until next week, Pound to South African Rand (GBP/ZAR) exchange rate movement is even more likely to be driven by political and geopolitical developments instead.
So unless investors decide to persist with emerging market recovery rally on concerns of the selloff being overdone, GBP/ZAR may actually hit further multi-year highs in the coming sessions.
The Pound has been driven by Brexit developments this week and this is likely to continue, especially if there are any comments from the UK or EU regarding the reports about Germany’s softening Brexit stances.
If EU negotiators play down the reports or their impact on negotiations, the Pound to South African Rand (GBP/ZAR) exchange rate could fall further from this week’s best levels.