GBP to ZAR Exchange Rate Jittery as Both Currencies Hit by Coronavirus Concern

March 17, 2020 - Written by Ben Hughes

STORY LINK GBP to ZAR Exchange Rate Jittery as Both Currencies Hit by Coronavirus Concern

Broad weakness in the South African Rand yesterday made it easier for the British Pound to South African Rand (GBP/ZAR) exchange rate to rise. However, movement has been more mixed today, with both currencies being hit by worsening concerns over the coronavirus pandemic in Britain and South Africa. Market anticipation for further developments and South African Reserve Bank (SARB) news is limiting the Rand’s appeal.

Last week’s mixed movement saw GBP/ZAR climb after opening the week at the level of 20.44. GBP/ZAR even briefly surged to a high of 22.13 – the best level for the pair since the 2016 Brexit vote. However, GBP/ZAR ultimately slipped towards the end of the week, closing the week at the level of 19.89.

Since markets opened again yesterday, GBP/ZAR has been once again attempting to advance. The pair has been struggling to sustain gains though amid Pound weakness. At the time of writing, GBP/ZAR was sliding back from yesterday’s highs and trended in the region of 20.24.

GBP Exchange Rates Tumbling as Domestic Coronavirus Fears Intensify

Earlier in the month, the Pound was fairly resilient. Sterling had been benefitting from hopes of UK economic resilience, as well as hopes that Britain could bounce back from the coronavirus outbreak.

However, as the number of UK cases surges and other major economies take more measures to prevent spread, the UK government has also ramped up its response to the pandemic this week.

Yesterday, UK Prime Minister Boris Johnson suggested citizens avoid socialising, as well as pubs and theatres. He also advised people to work from home if possible.

Due to the news, the Pound weakened further amid expectation that Britain’s economy would be hit hard by the pandemic after all. Many businesses have announced closures and layoffs today, and there are concerns about smaller businesses struggling to stay afloat.

According to Paul Dales, Chief Economist at Capital Economics, Britain could be about to enter a big recession. He said:

‘With the peak of the virus yet to come, it is clear we are in the early days of a big recession. As such, our previous forecast that GDP would fall by 2.5% q/q in Q2 is no longer fit for purpose.’

ZAR Exchange Rates Claw Back Some Ground in Anticipation for SARB

The South African Rand has been able to benefit a little from today’s Pound weakness, pushing GBP/ZAR back down from yesterday’s highs. This is despite a lack of strong support for the Rand this week so far.

Yesterday, the South African Rand tumbled as investors reacted to the weekend’s comments from South Africa President Cyril Ramaphosa. Ramaphosa announced a national state of disaster and announced measures to limit potential damage.

Due to this news and the worsening domestic coronavirus outlook, the South African Reserve Bank (SARB) is expected to cut interest rates at its policy decision this week.

With South Africa’s economic outlook gloomy as the coronavirus situation worsens, today’s ZAR rebound is not due to any positive news. According to Andre Botha, Currency Dealer at Treasury One:

‘If we look at the market, I think people are taking a pause for a moment. I think the market is exhausted and is just taking stock of where we are,’

GBP/ZAR Exchange Rate Forecast: Coronavirus and SARB Closely Watched

Pound to South African Rand exchange rate movement this week so far has been due to market reaction to UK and South Africa government stances on the coronavirus.

As a result, coronavirus developments are highly likely to remain the focus for GBP/ZAR investors for the remainder of the week.

South African Rand investors may brush over tomorrow’s South African inflation and retail sales stats as well. If the data is highly concerning it could weigh on the Rand, but South Africa’s economic outlook is already gloomy and the data may not make much difference.

In terms of upcoming news, Thursday’s South African Reserve Bank (SARB) policy decision will be closely watched by Rand traders.

SARB is expected to cut interest rates. If the bank is more dovish than expected, the South African Rand could see fresh losses and GBP/ZAR may advance more easily.

However, if Rand investors become more confident in South Africa’s stimulus measures or UK measures are seen as concerning, the Pound to South African Rand exchange rate is more likely to weaken instead.

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TAGS: Pound Rand Forecasts