Sliding UK Business Optimism Drags Pound South African Rand (GBP/ZAR) Exchange Rate Away from Highs
A fresh decline in the CBI business optimism index saw the Pound Sterling to South African Rand (GBP/ZAR) exchange rate slump sharply.
As optimism dipped from -32 to -44 in October this raised fresh concerns over the strength of the UK’s economic outlook, suggesting that Brexit-based uncertainty is still constraining growth.
As the CBI noted in its accompanying report:
‘Business sentiment deteriorated at the quickest rate since July 2016 (right after the EU referendum), while investment intentions for buildings, machinery, and training were at their worst since the financial crisis.’
This underwhelming result left Pound Sterling (GBP) on the back foot on Tuesday morning as investors continued to brace for the next parliamentary vote on Brexit.
With the possibility of a further extension of the current deadline still on the cards investors saw little incentive to favour the Pound.
Hopes of US-China Trade Progress Shore up South African Rand (ZAR)
The mood towards the South African Rand (ZAR) saw an improvement, meanwhile, amid hopes that the US and China are still moving closer to a trade deal.
A general increase in market risk appetite helped to boost ZAR exchange rates, even as worries over the underlying health of the domestic economy remained.
Growing concerns over the fate of state power utility Eskom and next week’s mid-term budget statement were not enough to keep the Rand under pressure for the time being.
Fresh volatility looks likely for the GBP/ZAR exchange rate on Wednesday, however, with the release of September’s South African consumer price index report.
With the headline inflation rate expected to show a minor easing from 4.2% to 4.3% demand for the South African Rand looks set to weaken once again.
A lower level of inflation would give the South African Reserve Bank (SARB) less cause for confidence, increasing the risk of fresh policy action coming before the end of the year.
Lack of Brexit Certainty Forecast to Limit GBP/ZAR Exchange Rate Upside
With little time left on the clock before the Brexit deadline the GBP/ZAR exchange rate may struggle to return to its previous sense of bullishness in the near future.
If the government gives up its proposed three-day timetable to push through its Brexit agreement support for the Pound is likely to fade.
Although a fresh extension of the deadline would give MPs greater opportunity to scrutinise the deal on offer the ongoing negative impact on businesses makes a further delay less palatable.
The prospect of a fresh general election could also weigh down GBP exchange rates, with markets having little appetite for further political uncertainty.
Thursday’s BBA mortgage approvals report may put an additional dampener on the Pound, meanwhile, if the housing market shows renewed signs of slowing.
As long as a lack of clarity over the UK’s future relationship with the EU continues to hang over the UK outlook the GBP/ZAR exchange rate looks set to remain on a weaker footing.