Article 50 Dominates as Rand Slumps

28 March, 2017

Tom Arnold

Yesterday was a fairly quiet day on the currency markets with little data of any serious note to trouble the market. A mix of German surveys and overall European money supply data provided little interest in the morning and some minor US data in the afternoon caused even less interest. The markets were fairly rangebound, moving within very small margins for Sterling against both the other majors – Euro and US Dollar – although it was the Pound making gains on both currencies over the course of the day.

The markets have been pretty stable, and in fact, a little positive for the Pound since the official date of March the 29th was announced for the triggering of Article 50, and this is likely to continue today, with another quiet day regarding economic data releases. There is nothing at home due out, and very little in Europe before a raft of low-key US releases this afternoon. There are various speeches from some of the big hitters from the Federal Reserve, which are always worth monitoring, but with FED policy largely telegraphed for the coming months, there is only a small risk of volatility off the back of these.

One interesting event on the markets yesterday was an almost 4% drop in South African Rand strength, which came about after President Jacob Zuma recalled Finance Minister Pravin Gordhan from an international investor roadshow without giving any reason. Gordhan has been seen as a stabilising influence on South Africa’s volatile political situation, and last year a threat to his position caused massive drops in Rand strength. President Zuma is famed for political machinations, and a sudden recall of his Finance Minister has worried the markets, who fear Gordhan could once again be under threat. Over the course of only a few hours, Sterling gained around 3.7% against the Rand, which if you do have any upcoming ZAR requirements, is a very good buying opportunity.

The week’s big news will inevitably be the triggering of Article 50 tomorrow lunchtime, with analysts split on what we expect to happen. A significant proportion believes that the markets have largely priced in the triggering and as such the rates we have already are as a result of Article 50. But there is no doubt that this triggering is one of the biggest political and economic events for a generation and we will be entering unchartered territory, and if there is one certainty on the markets, it is investor’s aversion to risk and uncertainty. As a result, the 12% lower rates we have seen against the Euro and 16% lower against the US Dollar since the referendum vote in June 2016, could indeed just be the beginning, with a not insignificant proportion of the market still talking parity against the Euro and close to parity against the Dollar.

If you, like those aforementioned investors, are also risk averse, it might be worth considering locking in your exchange rate before tomorrow’s triggering, which you can do even if you do not yet need the currency. Speak to your CI account manager to find out how, and to make sure you are protected from market volatility.