Pound to South African Rand Exchange Rate Benefits from Rand Weakness to Continue Rallying
After the latest comments from EU Chief Negotiator Michel Barnier gave the Pound Sterling to South African Rand (GBP/ZAR) a big boost on Wednesday, the pair jumped yet again on Thursday as emerging market currencies like the South African Rand (ZAR) tumbled.
GBP/ZAR opened the week at the level of 18.30 and has seen significant gains so far, climbing over half a Rand and touching a high of 19.02 on Thursday morning. This was the best GBP/ZAR level in half a month.
Wednesday’s GBP/ZAR surge was due to surprisingly optimistic comments about a possible UK-EU Brexit deal from EU Chief Negotiator Barnier, giving the Pound (GBP) its strongest boost in weeks.
Then on Thursday, investors sold emerging market currencies like the South African Rand in reaction to news that the Argentine Peso (ARS) had crashed.
Pound (GBP) Exchange Rate Outlook Given Strong Boost by Brexit Developments
Following weeks of ‘no deal’ Brexit fears dominating Pound movement, investors were excited this week by unexpectedly optimistic comments from the EU’s Chief Negotiator about the kind of post-Brexit deal that may be possible.
In what was a big surprise to both investors and analysts, Michel Barnier said that the EU was willing to offer the UK ‘a partnership such as thee never has been with any other third country’.
Barnier’s indication that the UK could have a closer relationship to the EU than any other non-EU nation excited investors and led to a surge in demand for the Pound.
The primary reason for broad Pound weakness had been concerns that the UK could leave the EU without any kind of deal at all. An unprecedentedly close deal between the nations outside of EU membership would give the Sterling significant support in comparison.
Still, some economists have warned investors not to get too bullish, as many obstacles remain both abroad and at home. According to economists from RBC:
‘We, however, stress that even if there is a deal struck between the EU and the UK, an even tougher hurdle will be to get any deal through the UK House of Commons – which at present seems to have moved down the ladder of concerns.’
South African Rand (ZAR) Slumps as Investors Sell Emerging Market Currencies
Global risk-sentiment has been weaker this week, which was already weighing on market demand for the risky emerging market South African Rand.
However, on Thursday emerging market currencies especially saw sharp falls, as investors reacted to news that the Argentine Peso (ARS) had seen a significant plummet.
The Argentine Peso (ARS) just suffered its worst one-day decline since 2015, falling over 7% due to failing investor confidence in Argentina President Mauricio Macri’s government.
Attempts from Argentina’s Central Bank to stabilise the Peso had a limited effect, and the currency still fell enough to have a downside impact on other emerging market currencies like the Rand.
Thursday’s South African data had no notable impact on South African Rand movement. Private sector credit fell short in July, but July’s PPI data was higher than forecast.
Pound to South African Rand (GBP/ZAR) Forecast: Could Rand Rebound?
Emerging market currencies plummeted in reaction to the crashing Argentine Peso (ARS), but if economists perceive the Peso’s fall as ultimately not being hugely influential for other emerging markets the South African Rand may recover.
Of course, if the Peso continues to fall instead or concerns remain about its potential impact on other emerging markets or emerging market currencies, the South African Rand will remain weak.
This would make it easier for the Pound to South African Rand (GBP/ZAR) exchange rate to sustain its best levels.
However, Sterling may lack the drive to hold its best levels regardless if ‘no deal’ Brexit fears rise again.
As analysts have pointed out, fissures remain within UK Parliament that could shoot down a Brexit deal in the House of Commons – even if it is agreed between UK and EU negotiators.
Some notable ecostats will be published on Friday which could influence GBP/ZAR too. UK consumer confidence from August, and South Africa’s July trade balance report.
Ultimately though, the Pound to South African Rand (GBP/ZAR) exchange rate is most likely to be driven by developments in politics and geopolitics as it has for most of the week.