Optimistic BoE Outlook could Inspire Rand to Pound Advance
The Pound has made moderate gains against the South African Rand recently, following the news that UK earnings and employment levels have risen.
The assumption has been that with the pace of wage growth catching up to the rate of inflation, the national wage squeeze will be reduced.
In turn, this would lessen the damage if the Bank of England (BoE) hiked UK interest rates, because households could better cope with increased repayment costs.
The BoE’s next interest rate decision will be on 8th February.
If policymakers suggest a better outlook because of recent UK data, the Pound could rise sharply against the Rand because of better odds of an interest rate hike.
Slowing UK GDP Stats could Weaken GBP/ZAR Exchange Rate
Another more imminent factor that could affect the value of the Pound will be the release of national GDP growth estimates for the fourth quarter.
Out on 26th January, these are predicted to show a downgrade to the year-on-year reading for Q4 2017, which could weaken the Pound.
Lower reported GDP means a less healthy economy, so the GBP/ZAR exchange rate could drop if forecasts are accurate.
South African Rand to Pound Rally Possible on Hints of Zuma Departure
In a recurrent situation in South Africa, the Rand has a chance at surging against the Pound if current President Jacob Zuma is forced from office.
Mr Zuma is a controversial figure in South Africa, as he has faced countless corruption charges and made suspect decisions about the national economy.
The African National Congress (ANC), South Africa’s ruling party, has recently elected Cyril Ramaphosa as its new President, but Zuma remains national leader.
If the ANC takes the nuclear option in 2018 and decides that Zuma has to go, the Rand could rise sharply against the Pound.
While there would inevitably be some turbulence during the handover period, the Rand could steadily appreciate in Zuma’s absence on hopes for a more stable economy.
Rand to Pound Rate could Drop if ZA Budget Risks Long-Term Damage
While there is optimism that Jacob Zuma could be ousted from office in 2018, there are also concerns about the government’s plans for the economy this year.
These worries primarily stem from recent statements made by Finance Minister Malusi Gigaba, who has been speaking at the World Economic Forum in Davos.
Mr Gigaba hasn’t disguised the damage that the next budget could do to South Africa, stating;
‘What I will be doing at the budget will be going to announce the tough decisions to stabilise the debt but reduce the budget deficit.
We have to announce tough decisions and South Africans will have to bear some pain [as a result] of some of the decisions we are going to have to announce in order to stabilise our debt’.
While honesty is a good policy, if the new budget ends up causing significant economic pain then the South African Rand could drop notably against the Pound.
Comments are closed.