Pound South African Rand (GBP/ZAR) Exchange Rate Flat as Investors Remained Cautious After Monday’s Oil Price Crash

April 21, 2020 - Written by John Cameron

STORY LINK Pound South African Rand (GBP/ZAR) Exchange Rate Flat as Investors Remained Cautious After Monday’s Oil Price Crash

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Rises as Risk Appetite Slumps

The Pound Sterling South African Rand (GBP/ZAR) exchange rate remained flat on Tuesday. This left the pairing trading at around R23.3479.

The South African Rand remained muted against the Pound today, after Monday’s plunge in oil prices weighed on market sentiment.

US oil prices plummeted, falling into negative territory for the first time ever, while international crude prices continued to slide as coronavirus weighed on global demand.

US oil prices managed to claw back into positive territory on Tuesday, although markets remained on the cautious side.

According to Jameel Ahmad, Global Head of Market Research and Currency Strategy at FXTM:

‘There is a tremendous oversupply in the market and simply nowhere left for storage, meaning that until someone can find a place to keep what is produced, limited buyers will be in the market.

‘Should risk-off prevail, a lack of risk appetite can see traders question whether the recent recoveries in global stock markets are justifiable. This would also pose a question for emerging markets and their currencies.’

While the South African Rand usually benefits from lower crude oil prices, the dramatic decrease in risk appetite hit the currency, and added to concerns over the already-weakened economy.

Pound (GBP) Flat After Hitting 12-Day Low Against US Dollar (USD)

Meanwhile, Sterling was unable to make gains against the risk-sensitive South African Rand, as better-than-expected UK labour market statistics had little effect on economic sentiment.

Employment data showed that UK employment benefit claims rose by a lower-than-expected 12,100 in March, under the expected increase of 172,500.

However, the data was based on the economic situation 11 days before Boris Johnson’s government announced the country would be going into lockdown.

Commenting on this, Kenneth Broux, FX strategist at Societe Generale said:

‘UK labour market data was largely a non-event [...] Today it’s all about Dollar strength and low oil prices.’

As markets focused on the coronavirus pandemic and oil prices, this sent Sterling lower against a handful of currencies. The Pound slumped to a 12-day low against the US Dollar.

Due to the lockdown measures, the country’s economy has been left paralysed, and Britain is now facing what is likely to be its worst recession in 300 years.

Employers in the country have put more than one million staff on temporary leave, and Chancellor Rishi Sunak reported a wave of applications for the government’s programme subsidising furloughed workers wages.

In a note to clients, MUFG currency analyst, Lee Hardman noted:

‘If the scheme proves successful at dampening the rise in unemployment, it will help the UK economy to recover once the lockdown is eased and provide encouragement for a stronger Pound further down the road.’

Pound South African Rand Outlook: Risk Appetite and Coronavirus in Focus

Looking ahead, the South African Rand (ZAR) could continue to fall against the South African Rand (ZAR) if risk appetite remains under pressure.

If risk appetite suffers further as traders continue to flock back to safe-haven currencies such as the US Dollar (USD), the Rand will edge lower.

Meanwhile, Sterling sentiment could slide following the release of disappointing UK inflation data.

If inflation falls further than expected in March, revealing further signs of damage due to the coronavirus pandemic, it will leave the Pound South African Rand (GBP/ZAR) exchange rate flat.

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