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Pound South African Rand (GBP/ZAR) Exchange Rate Falls as Risk-Appetite Rises Following Dovish US Fed

July 11, 2019 - Written by John Cameron

GBP/ZAR Exchange Rate Sinks as Risk-On Markets Boosts South African Rand

The Pound South African Rand (GBP/ZAR) exchange rate eased by 0.3% today, with the pairing fluctuating around R17.437.

The South African Rand (ZAR) rose against the Pound (GBP) on the return of risk-appetite following the US Federal Reserve’s Governor, Jerome Powell, seemed to indicate imminent rate cuts for the US later this month.

Warrick Butler, a Senior Trader at Standard Bank, said:

‘Given the potential for rate cuts in South Africa, the benefits the rand may gain from the lower trajectory in U.S. interest rates may not be as telling as at first glance.’

The South African Rand is a risk-correlated currency, and any signs of a rate cut or economic uncertainty in safe haven currencies like the US Dollar, has traders fleeing to riskier assets like ZAR.

Today meanwhile saw the annual SA manufacturing production figures for May.

These failed to meet the forecast 1.4% and instead fell from 4.3% to 1.0%.

As these grew only slightly due to a slump in mining, ZAR trader’s attention will likely quickly turn back to the South African Reserve Bank’s (SARB) likely stimulation of growth as the labour market suffers.

GBP/ZAR Exchange Rate Falls despite ‘Resilient’ BoE Statement

The Pound (GBP) failed to make any gains on ZAR following the Bank of England’s (BoE) financial stability report.

Sterling traders were reassured by the BoE’s statement that the bank was ‘prepared for Brexit and trade war-fall out’, in a moment of bullish emphasis of its resilience in the face of a potential chaotic exit from the European Union.

The BoE’s Financial Policy Committee said in its statement:

‘Even if a protectionist-drive global slowdown were to spill over to the UK at the same time as a worst-case disorderly Brexit, the core UK banking system would be strong enough to absorb, rather than amplify, the resulting economic shocks and continue to serve UK households and businesses.’

The BoE’s Governor Mark Carney, however, did warn about the consequences of a no-deal Brexit, highlighting its possible costs and strains on the UK economy.

Mr Carney was markedly balanced in his statement however adding:

‘There is progress, but there is more to be done in terms of capacity and infrastructure, there is more to be done in terms of companies being plugged into the system, which is under the WTO rules as opposed to under a common market.’

GBP/ZAR Forecast: Brexit and Tory Leadership to Remain in Spotlight

Sterling traders will be looking ahead to tomorrow’s speech from Gertjan Vlieghe, a member of the BoE’s Monetary Policy Committee.

As there are no notable UK data releases tomorrow, Brexit and the ongoing Tory leadership race are likely to remain in focus.

South African Rand traders, meanwhile, will be paying close attention to global trade developments.

Any indications of progress between the US and China during trade discussions, we could see ZAR rise.

The GBP/ZAR exchange rate could sink, however, if there are any indications that Tory leadership favourite Boris Johnson shows any further signs of favouring a no-deal Brexit.

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