The Sterling Pound Rallies Against The South African Rand As It Rides On The Wave Of Fresh Optimism
The South African Rand (ZAR) has been covering some ground against the Sterling Pound (GBP) over the past few days, but it lost some of those gains on Monday as the Pound rallied due to rising optimism about a soft landing after Brexit.
The renewed Brexit optimism came after reports that the opposition party and the Labor party in the U.K. have agreed to join forces with the common goal of averting a hard Brexit. The partnership fueled the GBP’s rally, thus growing stronger against the South African rand.
The GBP/ZAR’s chart demonstrates the South African rand’s gains against the GBP on Monday before a reversal that was likely caused by the revived hopes of a possible soft Brexit. The GBP/ZAR exchange rate traded as high as 18.8730 early Monday morning before embarking on a bearish trend as the GBP slipped. The slippage ended in the late afternoon with the day’s low at 18.5780, after which the trend turned bullish.
The bullish momentum continued on Tuesday as the GBP recovered the lost ground against the S.A. rand. The currency pair's exchange rate peaked at 18.9512 during Tuesday's trading session. The pair traded at 18.8195 at the time of this press. The South African Rand underperformed on Tuesday after yielding to the pressures of the decelerating global economy which has largely been influenced by the ongoing trade war between China and the U.S.
Why a hard Brexit would be dreadful for the U.K.
A faction of British legislators including the current British Prime Minister Boris Johnson is pro-Brexit. They want the U.K. to relinquish its E.U. membership so that it can enjoy benefits such as being able to secure trade deals with other countries independently without the E.U.
British legislators also want their country not to be obliged to contribute to the E.U.'s budgetary needs, and there is also the matter of being in control of British borders. Some have even argued that being a member of the E.U. has robbed the U.K. of its independence.
There would thus be some advantages of exiting the E.U., but there would also be some disadvantages. For example, the U.K. would lose all the trade deals that it is involved in through the E.U. This scenario would lead to a huge dent in the U.K.'s economy and a nightmare to the country's legislators.
Britain has three options that can help it remain subscribed to those trade deals. It could retain its E.U. membership and give up the Brexit pursuit. The other alternatives include joining the European Customs Union, or it could join the European Economic Area. Joining the Customs Union would allow the U.K. to retain its existing E.U. trade deals, but it would not be able to secure its own trade agreements.
The partnership between the Labor Party and the opposition will allow the legislators to play what is likely their last card before D-day. A no-deal Brexit will likely push the Sterling Pound into free-fall, thus hurting the U.K.'s economy.