The Pound has benefitted recently from stronger domestic data and hopes for the upcoming UK general election. However, this week’s political news has allowed it to continue advancing against emerging market currencies like the South African Rand.
GBP ZAR advanced from 17.32 to 17.44 last week but has thus far failed to hold last Friday’s high of 17.71, the pair’s best level since December 2016.
The Pound has been kept afloat in recent weeks by optimistic short-term data, as well as long-term hopes for increased stability following a UK general election on the 8th of June.
According to opinion polling, Theresa May’s Conservative party is widely expected to increase its Parliamentary majority in the general election. Markets believe a stronger Conservative party will help make the Brexit process smoother.
Last week’s UK data included a trio of better-than-expected PMI reports from April. According to Markit’s data, concerns that the UK economy was slowing due to lower consumer activity in 2017 may have been overblown and now these concerns have been pushed back for now.
Monday’s house price data from Halifax had disappointing month-on-month results but these had no notable effect on Pound movement.
Sterling has also been able to gain against the South African Rand due to an increase in demand for assets from developed markets.
Sunday saw the final round of the French Presidential election, which ended with a big win for pro-EU centrist candidate Emmanuel Macron.
With ‘Frexit’ concerns now fading fast, Monday saw a brief relief rally in developed markets which weakened the appeal of the emerging market Rand.
Monday’s South African data included April’s foreign exchange reserves results, which increased slightly to $46.69b. Investors largely overlooked this data however.
The Pound to South African Rand exchange rate outlook is currently higher due to UK data and election hopes, as well as the aversion to risky emerging market currencies lately.
However, this week’s Bank of England (BoE) meeting could certainly influence the Pound outlook one way or another.
Investors are hoping the bank will be reacting hawkishly to Britain’s recent economic strength. Any indication that the bank could be preparing to tighten Britain’s loose monetary policy would see GBP/ZAR put in further gains this week.
On the other hand, a cautious or dovish outlook from the BoE will disappoint investors. This would indicate that even with strong UK data the BoE is hesitant to change its monetary policy outlook in the long-term.
The Rand outlook may be influenced by Tuesday’s South African unemployment stats. Some analysts believe the South African unemployment rate will have worsened in Q1. However, if unemployment improves the Rand is likely to see an increase in demand.
GBP ZAR is likely to slip slightly when markets cool from the developed market rally too. The Eurozone’s economic outlook is now much steadier and as a result investors will be less hesitant to buy in riskier currencies like the Rand.
At the time of writing this article, the Pound to South African Rand exchange rate trended in the region of 17.55. The Rand to Pound exchange rate traded at around 0.0571.
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