UK Political Anxiety Keeps Pound Sterling South African Rand (GBP/ZAR) Exchange Rate on Weaker Footing
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate fell further out of favour on Wednesday even as global trade tensions persisted.
Support for Pound Sterling (GBP) faltered as May’s BBA mortgage approvals data showed a decline on the month, suggesting a greater level of caution among buyers.
With a sense of political uncertainty continuing to cloud the UK economic outlook this latest disappointment left investors with little incentive to favour the Pound over its rivals.
Markets continued to speculate over the likely outcome of the Conservative leadership contest, with the increasing risk of a no-deal Brexit scenario or a general election weighing heavily on GBP exchange rates.
As Jane Foley, senior FX strategist at Rabobank, noted:
‘In view of the fears associated with a no-deal Brexit, GBP investors would favour a UK government led by Hunt over Johnson. That said, the higher risk that Johnson would be prepared to go head to head with parliament over a no-deal Brexit brings in the potential of a no confidence vote. This could lead to a general election.’
Signs of Weaker Inflationary Pressure May Dampen South African Rand (ZAR) Appeal
Thursday’s South African producer price index data could put a dampener on the South African Rand (ZAR), with forecasts pointing towards a decline in price pressures.
Investors expect to see acceleration in producer prices ease from 1.3% to just 0.5% on the month in May, leaving ZAR exchange rates exposed to selling pressure.
Fresh evidence that inflationary pressure within the South African economy is faltering would give the South African Reserve Bank (SARB) less incentive to raise interest rates in the near future.
A weaker level of price pressures may encourage a greater sense of dovishness within the central bank, meanwhile, to the detriment of the South African Rand.
Signs that the upcoming G20 summit is likely to end in disappointment could also drag on ZAR exchange rates.
Unless there is progress towards a trade agreement between the US and China the risk-sensitive South African Rand could return to a weaker footing against its rivals.
GBP Exchange Rates Vulnerable to Continued Weakening in Consumer Confidence
Demand for the Pound could deteriorate further ahead of the weekend if June’s GfK consumer confidence index eases as anticipated.
As forecasts point towards the index dipping from -10 to -11 this month the GBP/ZAR exchange rate looks vulnerable to a fresh bout of selling pressure.
Signs that sentiment within the UK remains constrained by Brexit-based uncertainty and political jitters would not bode well for the economic outlook.
As long as growth looks set to ease in the second quarter support for the Pound is likely to fade further, with the prospect of Bank of England (BoE) policy tightening appearing increasingly distant.
On the other hand, any improvement in the consumer confidence index may offer the GBP/ZAR exchange rate a temporary boost during Friday’s trading session.