The rand and sterling. One is a beaten-up, illiquid currency, bumped around daily by chaotic politics but with the potential to force national leaders to rethink tough stances. The other is the national currency of South Africa.
Sterling has fallen by about 24 per cent against the rand so far this year, despite South African debt teetering close to junk status with the key rating agencies.
What’s more, the country — South Africa, that is — is on its third finance minister in 12 months, and the current post-holder, the highly respected Pravin Gordhan, has been summoned to court on fraud charges that he says are groundless and politically motivated.
Late last year, the rapid firing and hiring of finance ministers caused the rand to collapse, prompting a change of heart from president Jacob Zuma. Now, the slump in the pound seems to have focused UK political minds on the effect of a super-hardscorched-earth Brexit, too.
Many have sought to deride the Queen’s pound as an emerging market currency since it crashed out of bed in the early hours of Friday last week. Its 6 per cent tumble in the space of two minutes was certainly not the demure behaviour we have come to expect from the world’s fourth most heavily traded currency.
But, as one hedge fund manager only half-jokingly put it this week, the comparison is actually a little unfair to emerging markets, which at least know how to fight back. Here, the scope for a recovery is less clear.
Some have dared to wonder whether the Bank of England might be forced to bump up its rock-bottom base rate in an effort to support the currency, EM style. Tone-deaf thinking, almost certainly, but also a sign of how dramatically the currency’s trading style has shifted.
Others are even checking whether the BoE might have enough foreign reserves to intervene and buy sterling. With about $170bn squirrelled away, the answer is no — and, in any case, again, it is hard to imagine, especially as the central bank has repeatedly said that it would not stand in the way of a currency adjustment.
As HSBC points out, sterling is now a political animal. Economic data be damned. Get used to this emerging-market-type trading mode.