Pound to South African Rand Holds its Ground despite Fresh Brexit Uncertainties
Despite fresh losses for the highly volatile Pound (GBP) today, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate has continued to see strong performance. The Rand (ZAR) failed to capitalise on the pause in Sterling amid domestic energy jitters.
GBP/ZAR was weaker than other Pound pairs last week, but the South African Rand’s resilience seems to have run out over the last day.
After opening this week at the level of 18.69, GBP/ZAR briefly dipped before surging yesterday. This morning, GBP/ZAR briefly touched on a high of 19.17 – which was the best level for the pair in over six months, since March 2019.
At the time of writing GBP/ZAR was trending nearer the level of 19.05, and the optimistic outlook on Brexit means there may be further gains ahead.
Pound (GBP) Exchange Rate Rally Paused as Markets Anticipate EU Summit
While the Pound was able to hold most of yesterday’s impressive gains against the South African Rand (ZAR), the British currency, the market rally in the British currency did see pause today.
Investors bought the Pound en masse yesterday, amid rising speculation that the UK and EU were closing in on a potential new Brexit deal, or at least a draft of a deal.
However, concerns that the chances of a deal were shrinking, as well as fears about the lack of support in UK Parliament, left the Pound less appealing today.
According to Yukio Ishizuki, Forex Strategist at Daiwa Securities:
‘Even if the two sides can agree something, it is unclear if they can stick with the exit deadline,
Whether Britain’s Parliament will approve whatever has been agreed is another big uncertainty. Sterling had a good run-up, but some investors are lightening their positions.’
Today’s UK inflation rate data certainly didn’t offer Sterling much support either. Inflation was weaker than expected at just 1.7%. This weighed on the chances of the Bank of England (BoE) becoming more hawkish any time soon.
South African Rand (ZAR) Exchange Rates Slump on Eskom’s Power Cut Plans
The South African Rand had seen fairly resilient performance for much of the past week, as US-China trade hopes and market demand for high yields bolstered demand for the high-yielding South African currency.
However, amid the Pound’s rise in demand on Brexit hopes yesterday, the Rand was unable to avoid losses as the latest developments in South Africa ultimately left the Rand unappealing.
The South African Rand’s weakness was compounded on Wednesday, amid reports that South Africa’s state-owned Eskom energy firm was planning nationwide power cuts.
Eskom will implement stage 2 loadshedding due to capacity shortages. Many analysts remain concerned about the future of Eskom, which some say poses a big risk to South Africa’s economic outlook.
According to Andre Botha, Currency Dealer at TreasuryOne:
‘There was an initial knee-jerk reaction to the announcement. And the longer it (blackouts) goes on, the worse it will be for the Rand,
Any improvement (in sentiment) will depend on clarity we get from now on about what is happening. But there’s definitely negative risk across the board,’
Pound to South African Rand (GBP/ZAR) Exchange Rate Rally Could Collapse
The Pound’s gains this week have been due to rising speculation that the UK and EU are closing in on a new potential Brexit deal, and markets are excited by the possibility that a deal could be reached during the EU Summit towards the end of the week.
The EU Summit, due to be held tomorrow and Friday, has been seen as the last chance of securing a Brexit deal before the current 31st of October Brexit date.
While there are mutterings that there could be an extra EU Summit if a deal is perceived as close enough, the Pound’s potential for gains may be limited even if a deal is reached soon.
Analysts remain anxious about the lack of domestic support for the UK government’s Brexit plan. Even if a deal is reached, it may not get through UK Parliament.
In the event that UK-EU Brexit negotiations fail in the coming days, or on fears that Parliament could block any potential plan anyway, the Pound could plunge.
The Pound to South African Rand (GBP/ZAR) exchange rate is likely to remain a little higher overall though, as Eskom energy concerns weigh on the South African economic outlook and the Rand.