Rand hits worst level in history against the British pound written by Shaun Jacobs

[Nat Quinn]

The South African rand has hit its worst level versus the British pound, trading at R24.73 per pound on the morning of 3 April.

This comes after the South African National Assembly voted to pass a contentious Budget without the support of the DA or the FF Plus – both members of the Government of National Unity (GNU).

On Wednesday, 2 April, the National Assembly approved the fiscal framework, which establishes economic policy, revenue projections, and limits on government spending, by 194 votes to 182.

This included Finance Minister Enoch Godongwana’s proposal to increase VAT to raise additional revenue for the government.

It was accompanied by a non-binding recommendation that the National Treasury consider an alternative way to raise revenue.

The DA wanted a clear commitment to scrap the proposed VAT hike and for the Treasury to do more to fire up the economy and review spending.

While it hasn’t specified if it will leave President Cyril Ramaphosa’s GNU, that prospect has unnerved investors.

“We are considering options after yesterday,” DA leader John Steenhuisen said in a text message to Bloomberg on Wednesday evening.

“There are several internal meetings that need to take place, and we will meet as a party to discuss the scenarios and make an announcement in due course.”

The party is readying its exit from the government, TimesLive reported, citing people it didn’t identify.

TreasuryONE’s head of execution, Andre Botha, explained that this has resulted in the rand weakening significantly compared to other currencies.

This weakening on Wednesday afternoon was rand only, as it also weakened against other emerging market currencies, indicating that the main driver was the debacle surrounding the Budget.

While much focus was given to the rand’s weakening versus the dollar, it fell more sharply against other major currencies.

By 19:00 on Wednesday, 2 April, the rand held a 1.9% loss against the dollar, trading at R18.82 as the Budget fallout hit financial markets.

In comparison, the rand booked a 3.55% loss against the British pound on 2 April, trading at R24.42.

Trump comes to the party

The rand was hit with a double-whammy when United States President Donald Trump imposed tariffs on goods from around the world, including South Africa, rocking markets.

Botha explained that this provided some relief for the rand versus the dollar, with the greenback weakening after Trump’s announcement of tariffs.

He explained further that the pound-rand rate has two legs – the USD/ZAR rate and the GBP/USD rate.

The budget debacle and Trump’s imposition of tariffs confluenced, impacting both of these legs and compounding the effect on the rand.

The US dollar came under pressure following Trump’s tariff imposition, and the pound strengthened versus the greenback as the American currency weakened.

Thus, the move in the so-called ‘cross currencies’ like the British pound was exaggerated because of the double shock of a weakening rand and a weakening dollar against the pound.

As a result, the rand weakened further against the pound on the morning of 3 April, trading at R24.71 as of midday, compared to the previous highest level of R24.43 seen at the end of May 2023.

Trump’s tariffs were more wide-ranging than expected and more severe in specific cases, with South Africa being hit with 30% tariffs on local goods exported to the US.

Late on Wednesday, 2 April, Trump announced a global 10% tariff on all imports and higher rates for the ‘worst offenders’, including South Africa.

Trump said this is all part of his plan to balance trade and put America first, claiming that countries were exploiting trade with the United States.

The US President pulled out a chart during the briefing to illustrate his point, with South Africa being listed among the worst offenders alongside China, the EU, India, and Japan.

While Trump is focused on reciprocal tariffs, he explained that the United States would only be implementing “discounted” rates.

For example, while Trump claims China is imposing tariffs of 67% on the US, the US would charge a “discounted” rate of only 34%.

For South Africa, Trump claimed that the tariffs on the United States amounted to 60%. In turn, it will implement a “discounted” 30% tariff on the country.

“A lot of bad things are happening in South Africa,” Trump said. “We send them billions of dollars, but we had to cut their funding because bad things are happening.”

Trump said that if any country wanted to be exempt from the tariffs, it would have to move its production to the United States.

The president also announced a global 25% tariff on all imported vehicles, which will take effect from midnight in the United States. The reciprocal tariffs will become effective on 9 April 2025.

 

source::Rand hits worst level in history against the British pound – Daily Investor

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