Latest Zuma Developments Keep Pressure on Pound to South African Rand Exchange Rate
The Pound to South African Rand (GBP/ZAR) exchange rate has fallen in recent months as the African National Congress (ANC) has gotten a new leader and market hopes have risen that controversial South African President Jacob Zuma’s role could end soon.
Last week alone, GBP/ZAR plunged from 17.07 to 16.62. This was inspired both by rising hopes of a Zuma oust boosting the Rand, as well as Brexit concerns weighing heavily on the Pound (GBP).
On Monday, GBP/ZAR briefly touched on its worst level since June 2017, 16.43.
South African Rand (ZAR) investors are excited for the possibility that SA President Jacob Zuma could be removed from the role and replaced with new ANC leader Cyril Ramaphosa. Ramaphosa is popular among markets due to his anti-corruption stances.
While Zuma has thus far refused to step down from his role, the ANC has formally asked him to resign according to Tuesday reports.
If Zuma is indeed removed from office, the Rand could continue its recent rally on hopes that Ramaphosa will become South Africa’s new President earlier than expected.
Pound (GBP) Exchange Rates Recover from Lows on Strong UK Inflation Stats
The Pound to South African Rand (GBP/ZAR) exchange rate recovered from its worst levels on Tuesday on market uncertainty as well as some supportive data from Britain.
Britain’s January Consumer Price Index (CPI) results were published in the morning and came in higher than expected in all major prints.
The monthly figure came in at -0.5% rather than the expected -0.6%, while the year-on-year figure remained at 3.0% rather than slipping to the forecast 2.9%.
Notably, Britain’s core inflation rate rose more than expected from 2.5% to 2.7% year-on-year, indicating that inflation is increasingly domestic rather than due to the Pound’s strength affecting imports.
However, Sterling’s gains were limited as investors are concerned that uncertainty about Britain’s economy and the Brexit process will weigh on the chances of the Bank of England (BoE) being pressured to tighten UK monetary policy.
South African Rand (ZAR) Bolstered as Unemployment Rate Falls
The South African Rand saw further domestic support on Tuesday, as the currency was also boosted slightly by news that South Africa’s key unemployment rate had fallen.
The print fell from 27.7% to 26.7%, while the unemployed persons figure followed the previous figure of 6.21m with a result of 5.9m.
This meant that South Africa had recovered from its worst recorded unemployment rate in 14 years.
Pound to South African Rand (GBP/ZAR) Outlook Forecast to React to Political Developments
Political news is likely to see increased focus for Pound to South African Rand (GBP/ZAR) exchange rate traders in the coming days, as Brexit news concerns Pound traders and SA President Zuma faces an ultimatum to resign.
The Pound has been unable to benefit from higher bets that the Bank of England (BoE) could hike UK interest rates as soon as May, due to uncertainties about the Brexit process and how it could impact Britain’s economy.
Any optimistic developments about Britain’s stances in Brexit negotiations, particularly if they boost the chances of a smooth Brexit or a transition period, would boost BoE interest rate hike bets and the Pound.
As for the Rand, it is likely to continue to react to South African political news, particularly that regarding the Presidency.
If Cyril Ramaphosa looks to become South Africa’s next President sooner than expected, this could notably improve the long-term Rand outlook.
Wednesday’s South African retail sales stats from December could have a more short-term impact on Rand movement.