Looking at the bigger picture, GBP ZAR has been trading sideways since it broke to a multi-year high of 13.3942 in the middle part of last month.
Foreign Currency Market Update – GBP / ZAR Update
The past week has brought considerable volatility for the GBP ZAR exchange rate, with shifts in global appetite for risk determining the relative levels of the South African Rand. Europe’s ongoing debt crisis has been the primary driving force behind ebbs and flows in the value of the Rand. Last Friday’s session was a particularly bad one for the South African currency, as the yields on Spain’s benchmark 10 year bonds spiralled to 7% – this is the watershed level which analysts consider to be untenable for a Government to be paying on its debt in the short-to-medium term. Downside pressure on the Rand took the GBP ZAR exchange rate up to 13.1421 before close of business on Friday.
The weekend shut-down in the currency markets saw the people of Greece cast their votes in the country’s second general election in as many months. Within two hours of the polls closing, the leader of the centre-right ‘New Democracy’ party, Antonis Samaras, had announced that he would seek to form a pro-bailout coalition at the first possible opportunity. With New Democracy having secured the largest number of popular votes, it looks likely that Samaras will succeed in his stated aim, providing the leaders of the other major pro-bailout party, Pasok, are willing to play ball. The Greek election result triggered widespread relief from global investors, which sent Asian equities markets sharply higher when they re-opened on Sunday night. The Rand, along with other risk-laden assets, was also well-supported when trading resumed for the week in the currency markets, sending the GBP ZAR exchange rate to trade back down to 12.9400. However, the pair recovered much of this lost ground when Europe’s session got underway on Monday morning, as news emerged that the yields on Spain’s 10-year bonds had climbed to a euro-era record high of 7.14%.
Looking at the bigger picture, GBP ZAR has been trading sideways since it broke to a multi-year high of 13.3942 in the middle part of last month. It is too early to state with confidence whether this represents a period of consolidation before the pair heads higher, or the start of a new downtrend. If the situation in the eurozone deteriorates, then the former looks likely. However, if tomorrow morning’s Bank of England minutes reveal that an extension to the £325bn currently allocated to the UK’s Asset Purchase Scheme was seriously considered at the Bank’s most recent policy meeting, then GBP ZAR could head lower, with March’s 9-month low of 11.7624 providing a medium-term target.
Summary of major upcoming data releases that we think may move the market.
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