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Pound to Rand Exchange Rate Forecast: GBP/ZAR could Drop if PMIs Worsen BoE Outlook

Bank of England

The Pound has fallen further against the South African Rand on Monday’s trading session, with GBP/ZAR dropping by -0.8%.

This worsening of the Pound to Rand exchange rate is down to widespread trader uncertainty, triggered by the latest Brexit news.

The UK government’s insistence that it will leave the EU customs union has apparently hit home, panicking those worried about an economically-turbulent Brexit.

(First published 5th February, 2018)

Cautious Bank of England (BoE) Outlook could Drag GBP/ZAR Exchange Rate Down

The Pound to South African Rand (GBP/ZAR) exchange rate has traded in a narrow range on Monday, ahead of a high-impact Bank of England (BoE) policy meeting.

BoE officials will be meeting on 8th February to consider a change to UK interest rates, in addition to discussing the present state of the UK economy.

Forecasts are not especially positive for this meeting, given that recent UK PMI readings have showed slowing activity in January.

Considering the effects of this disappointing data, IHS Markit Chief Business Economist Chris Williamson has said;

‘The January slowdown pushes the all-sector PMI into dovish territory as far as Bank of England monetary policy is concerned, historically consistent with a loosening bias.

With the survey also indicating weaker upward price pressures, the data therefore cast doubts on any imminent rise in interest rates.’

An additional voice on the matter has been Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics;

‘[The BoE may] take a lengthy pause before raising interest rates again. We see the next [interest rate] hike coming in August’.

If the imminent BoE meeting suggests no policy action for the foreseeable future, then the Pound to Rand exchange rate could slide over concerns about UK stagnation.

Customs Union Rejection may Trigger Future GBP/ZAR Volatility

Other recent UK news has also risked a Pound to Rand exchange rate decline; this is the government’s insistence that the UK will leave the EU customs union after Brexit.

In a rare moment of clarity during Brexit negotiations, officials at Downing Street have confirmed that the UK will lose access to the EU customs union.

This means that the country will be able to strike up new trade deals across the world, but there could be limited access to the sizable EU marketplace.

The announcement is seen as an attempt to appease hardline Brexiteers in the Conservative Party, who have been pushing for greater UK sovereignty after Brexit.

Problematically, while this could lead to increased UK border controls, it also risks the UK seeing a significant shortfall in trade activity after Brexit.

If EU negotiators consider this a slight against them and make this clear in future Brexit talks, the Pound could progressively slide against the South African Rand.

President Zuma’s Removal could Trigger ZAR/GBP Exchange Rate Rally

The Rand to Pound exchange rate has recently risen and could improve even further, if South African President Jacob Zuma seems likely to leave office.

As it stands, Zuma is expected to deliver the 2018 State of the Nation Address on 8th February, which is seen as too much to bear by some.

Mr Zuma has been President since 2009 but faces numerous corruption allegations, in addition to making questionable economic decisions as national leader.

Zuma’s party, the ruling African National Congress (ANC), is thought to be considering the removal of the President in 2018.

The ANC elected a new party President, Cyril Ramaphosa, in late 2017 and there are hopes that Mr Ramaphosa could soon take over as national leader.

If the ANC does seem poised to finally remove Zuma from office in the near-future, the Rand could hit historic highs in the ZAR/GBP pairing.