GBP/ZAR Exchange Rate Rallies As South African Rand Weakens After IMF Warning On South Africa’s Debt Level
The South African Rand (ZAR) kicked off this week on a downturn after the International Monetary Fund (IMF) issued a warning over South Africa’s debt levels.
The announcement weakened the South African Rand's performance against the Pound Sterling, and this was evident in the rallying performance of the GBP/ZAR currency pair on Monday morning.
The IMF warned that South Africa's current debt reached a critical level. The country's current debt level is close to 60% of the country’s GDB, and thus mounting fears of a potential IMF bailout in the future.
Investors were also disappointed and fell out with the South African Rand after the country's President, Cyril Ramaphosa, signed a debt relief bill that had been the source of controversy in parliament. South Africa is currently experiencing a rising unemployment rate and low economic growth, which investors do not expect to change anytime soon, especially with the slowing global economy.
The current situation has discouraged investors from betting on the South African Rand. This has, in turn, resulted in a weaker currency, especially against major currencies such as the Sterling Pound. The result is evident in the GBP/ZAR exchange rate performance.
The GBP/ZAR exchange rate traded as low as 18.4820 on Monday after an overall bearish trend that prevailed on Sunday. The signing of the debt relief bill and the IMF’s warning fueled a bullish reversal that sent the currency to a high of 18.7510. The exchange rate was at 10.7204 at the time of this press.
The South African Rand has been on a downward spiral that has shaved off about 6% of its value since the beginning of this month. This decline was also fueled by mounting pressure over the expectations of a revised credit rating that would lead to a downgrade. Analysts also expected the government to bail out power company Eskom, thus the weighing in more on the Rand.
Experts believe that the Rand will continue to trade within a narrow margin, especially with the upcoming release of July’s consumer price inflation data on Wednesday.
Optimism in the Sterling Pound
The GBP/ZAR rally was also influenced by the GBP’s growing optimism about the Sterling Pound, contrary to the situation a few months ago when the Brexit issue hammered heavily at the British currency. The prospects of a no-deal Brexit made the Pound volatile and less appealing to investors, a situation that saw its value take a hit, especially against the US dollar.
Things, however, seem to be changing for the Sterling Pound as U.K. Members of Parliament have been holding talks with rebellious conservatives. These talks led to increasing the hope of a stable exit from the European Union in October, even if a deal fails to materialize.
The positive expectations regarding the Brexit situation have contributed to a stronger GBP performance and subsequently the rally of the GBP/ZAR currency pair. However, some experts are convinced that the GBP’s rally might not last for long because there is still a cloud of political uncertainty looming over the Brexit dealings.