Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Volatile: Little Movement as UK Banks Pass BoE Stress Test
The UK’s seven largest lenders have all passed stress tests by the Bank of England (BoE) designed to test their resilience to a weakened global economy. Despite passing the tests, RBS and Standard Charter were both warned to implement new measures, having been identified as the weakest of the big seven. All the banks tested have been instructed to set aside additional capital to provide a further buffer against UK lending losses.
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A rise in approved mortgages and the total debts secured against dwellings has increased investor fears that the UK could be heading for another housing bubble, further weakening an already soft Pound Sterling. Meanwhile, the South African Rand has been hit by a surprisingly large widening of the trade deficit.
GBP/ZAR Exchange Rate News: Pound Sterling Weakened as Data Supports Housing Bubble Fears
UK Net Lending Secured on Dwellings and Mortgage Approvals for October both performed better than forecast on Monday. Net Lending Secured on Dwellings remained at 3.6 billion, despite being forecast to fall to 3.4 billion, while Mortgage Approvals rose from 69.0k to 69.6k. Investors have been concerned by the prospect of a housing bubble for several months: FTSE shares in housebuilders dropped on the 20th this month as Bovis Homes warned that its annual profits would be hit by planning delays at new sites.
Crisis in the housing market is one of the key focusses of the Bank of England (BoE) Stress Test, the results of which are due out tomorrow and will show which UK banks are in a fit state to survive potential economic turmoil. Banks must prove that they have the ability and capacity to endure a market crisis which would result in a 3.2% fall in GDP, a 9.2% level of unemployment and inflation at near zero. On top of this, banks must be prepared for a 20% fall in house prices and a 30% fall in the value of commercial real estate.
The GBP/ZAR exchange rate is trending in the region of 21.6110.
ZAR/GBP Exchange Rate Forecast: Rand Strengthened Ahead of South Africa-China Relations Summit
The Rand is currently strong against the major currencies as Private Sector Credit unexpectedly rose from 8.39% to 8.87%, while M3 Money Supply increased from 8.47% to 9.74%, beating a forecasted fall to 8.2%.
South Africa is due to host the Forum on China-Africa Cooperation (FOCAC), an event which has run for 15 years but has never been hosted on African soil before. The summit represents a deepening in relations between the two countries, with the usual ministerial meeting being elevated to a leader’s summit. South African President Jacob Zuma and Chinese President Xi Jinping are set to co-chair the event on Friday and Saturday, which will focus on developing a greater partnership between the two countries.
The Rand has so far managed to avoid being weakened by a greater-than-expected deficit in trade, with the gap widening to -21.4 billion: ten times the forecast amount. The trade balance is now the biggest since January and has been fuelled by a 19% increase in machinery and electronics imports and a 45% increase in transportation equipment and vehicles. Total imports increased 16%, reaching 107.7 billion, while exports fell to 86.4 billion, down 6%. Exports of precious metals and stones fell 19%, while there was a 36% drop in vegetable products.
Pound Sterling is currently down -0.2% against the Rand.
GBP/ZAR Exchange Rate Forecast: Trade Deficit Likely to Drag Rand Down
The results of the BoE Bank Stress Test and the Financial Stability Report are likely to have a greater impact upon the GBP/ZAR exchange rate than the South African Total New Vehicle Sales. A particularly dovish outlook from the BoE regarding risks to the UK economy could weaken the Pound further, although the Rand will likely soften as the impact of the trade deficit is felt.
The GBP/ZAR exchange rate is currently trading between 21.5140 and 21.6380.