Bank of England Cites Brexit Risks for UK Economy – Pound (GBP) Exchange Rate Outlook Diminishes
Whilst the outlook for the Pound remained leagues ahead of the South African Rand (GBP/ZAR) on Wednesday, investors were concerned by some cautious statements in the latest financial stability report.
According to the central bank, progress has been made in preparing the UK’s financial sector for Brexit, but significant ‘material risks’ remained in the form of a lack of preparation on the EU’s part.
The bank stressed that the EU had not put measures in place to allow temporary permissions for UK entities to service contracts with customers in the European Economic Area – something that could result in massive difficulties for firms restructuring or transferring contacts.
This news did little to harm the GBP/ZAR exchange rate on Wednesday, but investors did grow slightly bearish in outlook, with the looming European Summit also a potential cause for concern.
Brexit and the Looming European Council Summit – What can we Expect for the Pound South African Rand (GBP/ZAR) Exchange Rate?
The main event this week for Sterling will likely be the European Council summit in Brussels, which starts on Thursday.
Investors, businesses and union leaders across the UK all seem rather desperate for signs of pace and urgency in negotiations, with many calling for measurable progress to be achieved.
Indeed, the CBI, Business Europe, the TUC and the European Trade Union Confederation have come together to issue a joint statement, stating:
‘We are calling on the UK government and the EU to inject pace and urgency in the negotiations, bringing about measurable progress… Decisions will be needed in June and October to finalise the withdrawal agreement and the transitional agreement and put economic interests and people’s jobs, rights and livelihoods first’.
Whether the EU summit will actually yield progress remains to be seen, but if agreement is reached then we could see GBP continue on its surge against the South African Rand.
South African Rand (ZAR) Exchange Rate Outlook Poor amid Frenzied Bond-Sell-off
The South African Rand (ZAR) tumbled against the majors on Wednesday as markets responded to news that foreign investors have sold near $2.5bn worth of South African bonds between January and June – marking the highest sell-off on record.
This move was largely driven by the ongoing trade spate between the US and China, and coincided with a massive correction in the price of the Rand, which investors viewed as overpriced after the hysteria of Cyril Ramphosa’s election.
Looking ahead, investors will be paying close attention to the looming South African PPI results, due on Thursday, and the South African balance of trade readings, due on Friday, with both releases capable of fostering or ruining demand for the Rand.