The exchange rate between the pound and the South African rand (GBP/ZAR) recorded significant gains today. Further load shedding and industrial action at power stations in South Africa is the likely cause for the currency pair’s rise today. A risk impulse could also help push GBP/ZAR higher.
At the time of writing, the GBP/ZAR exchange rate is around R19.9534, up around 1.6% from this morning’s opening figures.
South African rand (ZAR) exchange rates fall as unions reject Eskom’s payment offer
The South African Rand (ZAR) tumbles against its rivals today after electricity utility Eskom extended its schedule of power cuts. Eskom announced it would implement Stage 6 of “shedding” on Thursday and Friday after the company failed to reach an agreement with its strikers.
The power cuts represent the worst blackouts on record in South Africa. As many as 90% of staff at some of Eskom’s power plants are currently engaged in what the company calls an “illegal strike”. Eskom had offered a 7% pay rise to striking employees in an attempt to break the deadlock, but the offer was rejected by the unions.
In a statement, the NUM and Numsa unions representing workers said:
“We are demanding a double-digit salary increase. It has been overemphasized that as long as Eskom management is unwilling to commit to more than 15 other demands, no agreement should be reached between Eskom management and NUM and Numsa.
The stalled negotiations have seen an increase in civil unrest with workers reportedly burning homes and picketing power stations. Experts have warned that power cuts could reach stage 8 or more if strikes continue. Ongoing power shortages are also expected to keep pressure on the Rand in the coming days.
British Pound (GBP) exchange rates strengthen amid risky market environment
The British Pound (GBP) is gaining today against many of its rivals. Risky market sentiment is likely helping to push the pound higher after US inflation data posted a decline, reducing speculation of a global economic slowdown.
Large bets on the currency are still likely limited by the Bank of England your cautious though. In a speech on Wednesday, BoE Governor Andrew Bailey sought to calm expectations that the central bank would aggressively raise interest rates. Bailey signaled that the BoE may not need to “act forcefully” due to signs of an economic slowdown in the UK.
Bailey’s view was reinforced by comments from Swati Dhingra, the latest BoE policymaker. Dhingra said the UK economic slowdown looked “much more imminent” than previously thought and that a “very gradual” approach to rate hikes would be needed.
Heightened tension between the UK and EU over the Northern Ireland protocol could also generate headwinds for the pound today. On Monday, the British government voted to pass legislation through the House of Commons that would allow it to change elements of the deal.
This decision provoked numerous criticisms from national deputies and European diplomats. Maros Sefcovic, a senior EU official, said the UK’s expectations were “unrealistic and unfair” and their approach “hugely disappointing”. Sefcovic also saw a recent poll, released Wednesday, which indicated that 55% of NI residents supported the protocol in its current form.
GBP/ZAR exchange rate forecast: will the negotiations between Eskom and the unions bear fruit?
As for the pound, a drop in manufacturing growth could see the pound plunge if the PMI numbers come out as expected on Friday.
Further developments between the UK and the EU regarding the Northern Ireland Protocol. Additionally, any further dovish comments from BoE policymakers could also see the pound slide.
For the South African rand, the ongoing power outages across the country may continue to drive the currency lower. If negotiations between Eksom and the strikers remain unsuccessful, this could put additional pressure on the ZAR.