All of this provides a significant potential for future uncertainty in global markets, meaning that the Rand could experience sharp downside pressure at any given time.
Foreign Currency Market Update – GBP / ZAR Update
The GBP ZAR exchange rate has been steadily trending higher since rejecting the near term low of 11.7624 which it dropped to as recently as mid-March. The upward move for GBP ZAR has been triggered by improved UK employment and retail sales data in recent weeks, combined with waning global appetite for riskier assets including the Rand.
The past seven days have brought increased cause for concern over the future prospects for the global economic recovery, heaping further pressure on the down-at-heel Rand. Last Friday’s closely-watched US Non-Farm Payrolls data for April added to the ‘risk-off’ trading environment, revealing that the world’s leading economy had generated only 115,000 new jobs last month, versus expectations of an increase of 160,000. This saw the risk-sensitive Rand end the week trading on shaky ground, taking GBP ZAR to 12.6448 by Friday’s market close.
Things got worse for the South African currency during the weekend close, as political turmoil in the eurozone caused investors to feel even less secure in holding their funds in risk-laden asset classes. Greece’s elections saw almost 70% of voters decide in favour of ‘anti-bailout’ parties. Although no party gained overall control of Greece’s parliament, the fact that the popular ballot delivered such a resounding vote against the stringent austerity measures and tax hikes to which the Greek people have been exposed, makes a full scale Greek debt default a more tangible prospect than ever before. If the troubled Hellenic state does renege on its debt commitments, then the reverberations for the European and world economies would be manifold and pronounced, with several retail banks in far flung corners of the globe expected to go under. The fact that the French people elected Francois Hollande, a sternly pro-growth and anti-austerity socialist candidate, as their new President on Sunday, added to the eurozone’s problems, as it now seems unlikely that the German-French relationship will be as well-equipped to deal with the fall-out from a Greek default.
All of this provides a significant potential for future uncertainty in global markets, meaning that the Rand could experience sharp downside pressure at any given time. This has seen the GBP ZAR exchange rate jump to its highest level since the first week of 2012 to touch 12.8062 in early trading this week. Further bad news from Greece could drive the pair higher. Conversely, if the Bank of England responds to the impending air of doom in the global economy by electing to expand the £325bn which it has already allocated to it Quantitative Easing scheme, when its monetary policy committee meets on Thursday, then the GBP ZAR rate could pullback towards its mid-March lows below the 11.80 level.
Summary of major upcoming data releases that we think may move the market.
- Pound to Euro Forecast – Sterling Trending Higher?
- The GBP CAD exchange rate steadily lost ground throughout last week’s session
- Euro Update – Sterling was marching steadily higher through mid October until we hit a major stumbling block
- Foreign Exchange News – The Pound received a short-term boost on Thursday
- The GBP NZD rate has held above last Wednesday’s near-term low of 1.9041