- UK GDP Shows Growth On-Track – Year-on-year print better-than-expected
- ‘Brexit’ Bets Continue to Decline – Investors hopeful Britain will remain in EU
- South Africa Celebrates ‘Freedom Day’ – South African markets close for public holiday
- Forecast: Economic Calendar Quiet Until Friday – South African trade resumes tomorrow
GBP/ZAR Gains Ahead of FOMC Meeting, Up 1%
The Pound’s rally against a weakened South African Rand continued throughout Wednesday’s session as traders adjusted themselves ahead of this evening’s Federal Open Market Committee (FOMC) announcement.
Positive US data recently released has caused uncertainty within investors, who may be settling away from riskier currencies as they await the aftermath of the decision.
Since earlier in the day, the Pound Sterling to South African Rand exchange rate has climbed even higher. It is currently around 1% up and trends in the region of 21.1320.
Earlier…
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate sailed forward with little resistance on Wednesday as South African markets closed to observe Freedom Day, however the Pound’s advances slowed as investors began to settle on ‘Brexit’ bets.
GBP/ZAR briefly hit 21.1562 during Tuesday’s session, a two-week high. The pair has since dipped a little but still moves in the Pound’s favour. It currently trends in the region of 21.0700 and is up almost 0.7%.
Pound (GBP) Buoyed by Optimistic GDP Reports
Following a bullish past week for the Pound, its gains seemed to be slowing on Wednesday. Sterling had previously seen considerable gains as investors reacted to polls and poll analysts suggesting a ‘Brexit’ was much less likely than feared.
Recent poll analysis claims that only 20% of voters will vote for the UK to leave the EU in June, and phone polls released by The Telegraph show an increasingly motivated ‘Remain’ campaign.
Previously weakened by worries of an uncertain economic future, investors indulged in profit-taking and the Pound soared. Its good news continued on Wednesday as the latest key Gross Domestic Product (GDP) reports came in optimistically.
The quarterly release slowed from 0.6% to 0.4% as forecast, while the year-on-year print showed that growth unexpectedly held at 2.1%, despite predictions that it would slow to 2.0%.
According to the BBC, the 0.4% quarterly rate marks the 13th quarter of positive growth.
Economist Samuel Tombs’ said of the result;
‘Concerns about Brexit likely played a role in the first quarter slowdown and they probably will take a greater toll on GDP growth in the second quarter. But the downward trend in GDP growth since 2014 suggests that the EU referendum cannot be blamed for all of the economy’s ills.’
South African Rand (ZAR) Experiences Muted Trade on Freedom Day
The appeal of the Rand has been mixed this week as political uncertainty towards the future of President Jacob Zuma’s office continues.
On the other hand, rising risk-sentiment from widespread investor disappointment in the US economy has led to the Rand holding its ground. Mixed commodity news has also meant the Rand is among the more appealing risk-currencies.
South African markets closed during Wednesday’s session as the nation observed ‘Freedom Day’. The public holiday serves as a celebration of democracy, on the anniversary of the nation’s first democratic election on the 27th of April, 1994.
Unfortunately the day will also cause mixed sentiment for the Rand, as the political party that has ruled since 1994, the African National Congress Party (ANC) has come under continued criticism due to Zuma’s increasingly disliked behaviour as President.
German news site Deutsche Welle (DW) reports that while the ANC will aim to boost its image during the public holiday, many groups will also protest the current government.
‘Mark Heywood of the organization Section 27 said that protest marches planned for Freedom Day will highlight the disappointment of the people over the lack of values and principles among some leaders.
“People are angry. People feel that the president has treated them with contempt. People are also angry because of the conditions in which people are living. The hunger, the unemployment and the poor education feels like it is getting worse every day,” Heywood said.’
Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Forecast: Risk-Market Trade Until Friday
With Britain’s GDP still fresh off the press and Thursday set to be quiet for both UK and South African data calendars, the GBP/ZAR exchange rate is likely to instead move on currency cross-flows as the US Federal Open Market Committee (FOMC) key rate decision approaches.
As a driver of risk-sentiment, the decision is likely to heavily influence Rand movement over the coming days.
If policymakers push back the hopes of interest rate hikes, riskier emerging market currencies like the Rand will likely soar in response and could easily hold ground against a bullish Pound.
On the other hand, if the Fed indicates that rate hikes could happen sooner rather than later, GBP/ZAR will be allowed to remain bullish as risk-off movements turn investors away from the Rand.
Friday’s anticipated data releases include Britain’s GfK consumer confidence survey, currently expected to print at -1 in April. Later in the day, the March South African trade balance report is due for release, forecast to remain in a deficit of -1.5b. Analysts however, currently hope it could escape its deficit and print at 0.0b.
The Pound Sterling to South African Rand (GBP/ZAR) exchange rate currently trends in the region of 21.0700, while the South African Rand to Pound Sterling (ZAR/GBP) exchange rate trades at around 0.04742.
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