Pound to South African Rand Exchange Rate Surges on Brexit Transition Agreement
The week started out with what markets have perceived as a major Brexit development, and this has boosted the Pound to South African Rand (GBP/ZAR) exchange rate since markets opened.
Risk-off movement and concerns about South Africa’s credit rating from Moody’s made it easier for GBP/ZAR to climb from 16.35 to 16.70 last week, but on Monday Brexit news caused the pair to touch on a monthly high of 17.00.
Negotiators from the UK and EU appeared to agree to a large portion of an updated Brexit deal draft, including the terms of a post-Brexit transition period.
With a transition deal now looking as good as agreed, concerns of a ‘cliff edge’ hard Brexit scenario lightened considerably and the Pound (GBP) surged.
While GBP/ZAR slipped from this level towards the end of the day and continued to slip on Tuesday morning, the pair could be in for further gains later in the week if the Moody’s agency cuts South Africa’s credit rating.
Pound (GBP) Exchange Rates Unable to Hold Best Levels as UK Inflation Slides
Tuesday morning saw the publication of Britain’s February Consumer Price Index (CPI) results, which fell short of forecasts in every major print.
UK inflation was forecast to rise from -0.5% to 0.5% month-on-month but only reached 0.4%. The yearly figure slipped from 3% to 2.7% rather than the forecast 2.8%.
Core inflation also disappointed, sliding from 2.7% to 2.4% year-on-year.
The slower inflation was due to lower prices in transport and food and the data indicated that the Pound’s impact on prices since the Brexit vote had finally begun to cool.
While the news was good news for households suffering from a pay squeeze, investors hoping for a more hawkish tone from the Bank of England (BoE) were disappointed by the data.
BoE interest rate hike bets slipped following the inflation report and this dragged on Sterling.
South African Rand (ZAR) Investors Gear Up for Moody’s Credit Rating Review
Last week, concerns that Moody’s could cut South Africa’s final investment-grade credit rating to ‘junk’ concerned investors and left the South African Rand (ZAR) unappealing.
Other major credit ratings agencies such as S&P and Fitch cut South Africa’s credit rating to junk in the past year, leaving Moody’s with the only one still giving the nation an investment-grade rating.
Moody’s is expected to announce its review this week. While markets are becoming more hopeful that the credit rating will be left alone due to economic confidence in new South African President Cyril Ramaphosa, uncertainty is still causing Rand volatility.
Market confidence in South Africa’s economy and the Rand outlook have improved since controversial ex-President Jacob Zuma left office earlier in the year.
Tuesday saw the publication of South Africa’s February inflation results. While the yearly rate fell short of expectations, the Rand was little affected due to market anticipation for the Moody’s decision.
Pound to South African Rand (GBP/ZAR) Forecast: Moody’s and Bank of England (BoE) in Focus
With Britain’s inflation falling short of expectations, market focus has turned towards the Bank of England (BoE) which will hold its March policy decision on Thursday.
The Pound could still see further gains against the South African Rand towards the end of the week if the bank indicates that UK interest rates could still be hiked at a quicker pace than expected despite the slower inflation rate.
If the BoE takes a hawkish tone on monetary policy, the Pound outlook for 2018 will rise and GBP/ZAR is likely to see stronger performance.
However, the Rand would definitely become stronger and limit Pound gains if Moody’s leaves its South African credit rating untouched in this week’s review.
While the biggest focus of the GBP/ZAR outlook in the coming days will be BoE and credit rating news, data could also prove influential. UK wages and retail stats will be published in the coming sessions, as well as South African retail sales.
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