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Pound to South African Rand Exchange Rate Recovers Despite Uncertain UK Political Outlook

Pound to South African Rand Exchange Rate Recovery Limited by Strong South African Data

Broad weakness in the South African Rand (ZAR) earlier in the week has limited the Pound Sterling to South African Rand (GBP/ZAR) exchange rate’s losses. However, a Pound (GBP) recovery on Wednesday was also limited as South African data beat forecasts.

Since opening this week at the level of 18.07, GBP/ZAR has largely fluctuated. GBP/ZAR briefly touched a 3-week-high of 18.24 yesterday, before tumbling below the week’s opening levels.

At the time of writing on Wednesday, GBP/ZAR was trending near the level of 17.93. The pair had recovered from its lowest levels, but still remained below the week’s opening levels due to stronger South African data and an embattled Pound.

Sterling recovered slightly versus rivals, including the Rand, on Wednesday due to expectations that UK Prime Minister Theresa May would survive an upcoming no-confidence vote from her Conservative Party.

However, the Rand avoided major losses thanks to strong South African data, despite the currency’s weakness earlier in the week.

Pound (GBP) Exchange Rates Firm Slightly Ahead of UK No-Confidence Vote

News that the UK Conservative Party had amassed enough letters of no-confidence in UK Prime Minister Theresa May to trigger a no-confidence vote led to Sterling (GBP) gains on Wednesday, rather than further losses.

Analysts expect the Pound was already on track to rebound slightly following the plunges seen earlier in the week, but others also speculate that investors are predicting an optimistic outcome for the no confidence vote.

According to David Cheetham, Chief Market Analyst at XTB, the vote could actually improve UK Prime Minister Theresa May’s position:

‘Given the time it has taken to reach this point it is pretty clear that there’s not overwhelming support to oust the PM, and should [Mrs] May survive this contest by a sizable margin then it will likely serve to embolden her position and could well spark a recovery in the Pound following the recent declines’

This was despite the fact uncertainty had technically risen due to the no-confidence vote, and many uncertainties regarding the path of Brexit itself persist.

As a result, Sterling’s recovery was limited as investors highly anticipate the result of the no-confidence vote.

South African Rand (ZAR) Exchange Rate Firms on Strong South African Data

Earlier in the week, the South African Rand was pressured by various domestic and global factors which made it easier for the Pound to South African Rand (GBP/ZAR) exchange rate to avoid losses despite Brexit jitters.

The South African Rand was pressured by concerns about South African credit ratings, next year’s elections, and concerns about nationwide power outages in South Africa.

On top of this, the risky emerging market South African Rand has been pressured by ongoing global political uncertainties, such as tensions between the US and China and of course Brexit uncertainties.

However, on Wednesday South Africa’s latest Consumer Price Index (CPI) inflation rate and the nation’s latest retail sales results were published. Most prints came in stronger than expected and this bolstered the South African Rand slightly.

South African inflation came in at a strong 5.2% year-on-year, slightly boosting South African Reserve Bank (SARB) interest rate hike bets.

October’s South African retail sales stats were also impressive. The yearly October print jumped from 0.7% to 2.2% rather than the expected 1.8%.

Pound to South African Rand (GBP/ZAR) Exchange Rate Investors Await Any and All UK Political Developments

Amid a lack of South African data due in the coming sessions, Pound to South African Rand (GBP/ZAR) exchange rate investors are likely to focus on UK political news.

After a major few days for UK and Brexit developments, it’s unlikely the developments will slow much over the next few days.

This, as well as a lack of any solid indication of how the Brexit process will turn out, means the Pound outlook is full of volatility as investors await any signs of clarity or certainty.

If UK Prime Minister Theresa May sees off the no-confidence vote and wins as analysts expect, the Pound’s potential for gains is still marred by fears that her negotiated UK-EU Brexit deal could be blocked by UK Parliament.

In the event she loses, a Brexit delay may offer Sterling some relief but the possibility she could be succeeded by a hard Brexit supporter would worsen the Pound outlook instead.

While UK political developments will remain the primary driver of the Pound to South African Rand (GBP/ZAR) exchange rate outlook, the risky Rand could be influenced by shifts in global risk-sentiment as well.