The Pound South African Rand exchange rate has slumped this week, hitting its worst levels since the end of 2013 as UK growth forecasts continue being weighed down by Brexit concerns and signs of slowing growth in 2017.
Meanwhile, the South African Rand continues its trend of being one of 2017’s best performers so far. This has seen GBP ZAR fall from 16.02 to 15.81 this week.
While Rand resilience has contributed to GBP ZAR weakness, the main factor behind the downtrend has been limited Sterling demand.
With the Brexit bill bouncing between debate in the UK House of Commons and the UK House of Lords, investors are jittery on whether or not UK Prime Minister Theresa May will get her vision of the Brexit process.
This week, a spokesperson for May suggested that she was against giving UK Parliament full veto power over the final Brexit deal.
Allegedly, May believed that a potential veto would give EU leaders the means to potentially scupper Brexit by only offering the UK bad deals in expectation they would all be vetoed. This increased concerns that May’s ‘hard Brexit’ could not be avoided.
While Brexit concerns have kept the British currency pressured, recent UK data has also suggested that UK growth could slow throughout 2017.
Concerns that British economic activity and growth will slow in the coming year due to surging inflation have only worsened.
This week has seen the publication of a retail report from the British Retail Consortium (BRC) which indicated that retail sales had slumped -0.4% year-on-year for the three months to February, with non-food sales falling for the first time since 2011.
The print increased concerns that UK retail activity slumped further in February. If UK consumer spending continues slowing in the coming months it could significantly hinder Britain’s key services sector, which is responsible for much of Britain’s economic growth.
Recent South African data has kept the currency buoyed, with Tuesday’s South African Q4 year-on-year Gross Domestic Product (GDP) beating expectations of 0.6% and remaining at 0.7%.
Hopes that local economic data will continue performing strongly, as well as waning Chinese economic concerns, have given the Rand a good short to mid-term outlook.
However, as is the case with risky emerging market currencies, the South African Rand could easily fall in the long run if the UK economic outlook improves and GBP ZAR rises – or if traders begin to perceive the Rand as overvalued.
At the time of writing, the Pound South African Rand exchange rate trended in the region of 15.80. The Rand to Pound exchange rate trended at around 0.0630.