Brexit jitters and Emerging Markets turbulence have meant the past few months, read couple of years in the case of pound sterling, have been very volatile for the pound to rand course. The chart mapping the relationship between the UK and South African currencies over the past 12 months resembles a stormy ocean building to crescendo.
For businesses and private individuals that regularly make pound to rand or rand to pound currency transfers, or have a single significant transfer on the horizon, the current situation is a challenge to say the least. Over the week between August 29th and September 5th this year (2018), pound sterling gained over 1.7% against the South African rand. On a rand to pound transfer worth £100,000, that would have cost a business or individual £1700+ in a week. Or on a pound to rand transfer led to the equivalent saving. By early October the pound had dropped circa. 1.5% again the rand.
For businesses or individuals making regular or significant currency transfers, the daily, weekly and monthly pound to rand volatility over the recent period could easily add up to tens of thousands of pounds in currency exposure. Exchange and transfer timing missing the optimal conversion rates by a few days either way on several occasions could easily add up to the annual salary of a member of staff for businesses or a nice vacation for individuals. Potentially significantly more for higher value pound to rand or rand to pound transfers.
With such a significant flow of trade and personal travel and finances existing between the UK and South Africa, the pound to rand exchange rate is one of the most sensitive currency pairs not involving the majors. As a business or individual exposed to the pound to rand rate over coming months it would be committing a potentially major financial management error to not carefully keep an eye on the movement of the two currencies and influences driving them as well as taking steps to manage the risk.
As well as making sure you find a strong pound to rand exchange service to not only get the best spot rates but to potentially hedge the heightened volatility risk currently in play by locking in the best rates possible ahead of known currency transfers coming up over weeks or months ahead.
Let’s take a quick look at the outlook for both pound sterling and the South African rand over the coming months and also how you, as a business or private individuals, can give yourself the best chance of potentially saving thousands on exchange rates.
Pound Sterling Outlook
Since late 2015, pound sterling has lost around 15% against the dollar and 20% to the euro. Why? Brexit. Financial markets don’t like uncertainty and there is a LOT of uncertainty around Brexit. The UK’s economy may go from strength to strength after the initial, almost inevitable adjustment period directly following Brexit. It also may not. At this stage it is the risk factor around the latter that has been priced into the flagging pound.
In the short term pound sterling volatility can be expected while Brexit is ongoing and most analysts are of the opinion that further weakening is more likely than strengthening even if a Brexit deal is negotiated before the end of the year. Important questions will remain unanswered even if that is the case. It will take time for key elements of future trade relationships with the rest of the world and Europe to be nailed down. The uncertainty that has weakened the pound over the past couple of years is likely to remain a drag for several more to come.
That means the downward readjustment of pound sterling is unlikely to be a temporary blip. Within that context, businesses and individuals making sizeable currency transfers should strongly consider locking in exchange rates when any upward momentum trends do occur.
South African Rand Outlook
South Africa’s economy was dragged into its first technical recession since 2009 over the first six months of 2018. Initial optimism when Cyril Ramaphosa replaced Zuma as president fell away along with the country’s output, which dropped 2.6% over the first quarter and at an annualised rate of 0.7% in the second. The rand followed suit, shedding 2.8% against the dollar to drop back to early 2016 lows.
The woes of the rand have proven to be one of the main catalysts behind the wider Emerging Markets currency and equities sell-off since. A September recovery has failed to hold into October with around half of gains against the USD shed over the first several days of the month. But is the rand likely to stabilise and regain some of the lost ground in the months remaining to the end of the year and beyond towards 2020, with particular reference to its relationship to the pound, which is unlikely to have a positive performance itself?
If the pound’s softness is a symptom of economic uncertainty, the rand’s is more a case of economic reality. South Africa’s GDP growth hasn’t broken above 2% on an annualised basis in half a decade. And there are major structural challenges to be tackled before it does with unemployment running at above 27% and higher oil prices hitting the spending power of consumers with fuel costs proving a drain.
Major investment agreements have been reached with China and Gulf states but current growth bottlenecks include uncertainty over regulation governing the crucial mining sector and a new legislative framework for land reform that also protects ownership rights. Tied to economic malaise is future interest decisions by the central bank that will influence the rand. For now, despite weak growth, current base interest rates will be maintained. In large part because lowering them might well lead to a new plunge in the rand.
The rand outlook over at least the next 12 months looks challenging and much will depend on wider EM sentiment and how quickly Ramaphosa can deal with the raft of fissures in his country’s economic, legal and social structures.
Pound to Rand Outlook
With both currencies looking like they will lack catalysts for serious upwards momentum in the foreseeable future, the pound to rand relationship will be most likely be defined by relative weakness rather than relative strength over the coming months. But volatility remains highly probable.
Getting the Best Pound to Rand Exchange Rate
Businesses or individuals making pound to rand or rand to pound currency transfers can either take advantage of current volatility between the pair or lose out. By using a professional currency brokerage service you can: