Dust settles after volatile we

Dust settles after volatile week

Last week ended off with a bombshell for the GBP, with the currency losing 6.1% against the USD in just two minutes. With the Pound at its lowest level in 31 years, many South Africans have been buying as much of the English currency as they can.

Dust settles after volatile we

The GBP’s flash crash happened during Asian trading hours on Thursday and was the second largest percentage drop in the GBP – USD rate since 1971.

Theresa May’s statements about a “hard Brexit” have put the sterling under further pressure, prompting many UK business leaders to write an open letter urging the government to consider the effects on UK financial services and export industries.

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The ZAR is currently in an incredibly strong position against the GBP, with the Pound feeling the woes of Brexit and the SA economy performing better than expected. At the time of writing, the ZAR was trading at GBP – ZAR 17.04, USD – ZAR 13.77 and EUR – ZAR 15.38.

Read more about the flash crash here.

What to look out for this week: Many South Africans will be trying to ascertain which way the Rand will go this week. Unfortunately, the future movements of the ZAR are difficult to predict. The SARB has already indicated that it is happy with the level of inflation in the country and possibly at an end to its rate hiking cycle.

This leaves the door open to possible interest rate cuts in the Republic in the medium- to long-term. A cut, together with the expected future interest rate hikes in the US, could devalue the Rand in the medium-term. However, the long-term effects remain to be seen.

Liquidity will be thin today with the US and Canadian markets closed due to a public holiday. Currency movements in the week ahead will be mostly event-driven with a lack of any major international data releases scheduled. In South Africa, we have manufacturing production data releases scheduled on Tuesday.

– Sebastian Steyn

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