Pound to South African Rand (GBP/ZAR) Exchange Rate Falls as South Africa Reveals $25 Billion Stimulus Package

April 22, 2020 - Written by John Cameron

STORY LINK Pound to South African Rand (GBP/ZAR) Exchange Rate Falls as South Africa Reveals $25 Billion Stimulus Package

GBP/ZAR Exchange Rate Falls as Rand Investors Celebrate SA Stimulus

The Pound to South African Rand (GBP/ZAR) exchange rate fell by -0.5% today, with the pairing currently trading around R23.20.

The South African Rand (ZAR) rose today as markets continue to celebrate the nation’s unveiling of a $25 billion stimulus package. President Cyril Ramaphosa’s new economic plan was described as ‘radical’ and has gained favour with many businesses and political leaders.

Ramaphosa said:

‘To date, the World Bank, International Monetary Fund, BRICS New Development Bank and the African Development Bank have been approached and are working with the National Treasury on various funding transactions.’

‘Some of these institutions have created financing packages that are aimed at assisting countries that are having to address the coronavirus crisis like us. This funding will be used, in the first instance, to fund the health response to coronavirus.’

ZAR has also benefited from a return of risk sentiment after a number of European nations continue to step down their lockdown measures. Consequently, the risk-averse South African Rand has received a boost on growing hopes that the world’s third-largest economy could be on the road to recovery.

Pound (GBP) Falls as UK is ‘At the Peak’ of the Coronavirus Pandemic

The Pound (GBP) fell against the South African Rand (ZAR) after Health Secretary Matt Hancock said that the UK is now ‘at the peak’ of the coronavirus pandemic.

Mr. Hancock said in today’s PMQs:

‘We are at the peak. But before we relax any social distancing rules or make changes to them we have set out the five tests that have to be met.’

Meanwhile, today saw NHS England announce a further 665 deaths from people who had tested positive for Covid-19, bringing the total up to 16,272. As a result, this has left many Sterling investors anxious as the UK continues to grapple with the crisis.

In UK economic news, today saw the release of the UK inflation report for March, which fell from 1.7% to 1.5%.

Sarah Hewin, a Senior Economist at Standard Chartered Bank, commented:

‘Normally low inflation would be welcomed as it means people have effectively more to spend in the shop but these are not normal circumstances.’

‘The fall in inflation, in addition to low energy prices, is an indication of the steep recession we will see in the coming months.’

However, with the UK’s inflation expected to get worse in the coming months, this failed to buoy the GBP/ZAR exchange rate on growing fears over the UK’s economic health.

GBP/ZAR Forecast: Could the South African Rand Rise on Positive Risk-Sentiment?

Pound (GBP) investors will be keeping a close eye on tomorrow’s release of the flash UK Markit Services PMI. If this markedly falls below forecasts, then we could see Sterling fall further against the South African Rand.

The South African Rand (ZAR) will remain sensitive to global economic developments throughout the course of this week. Any further signs of lessening cases of coronavirus in China or Europe would boost risk-sentiment and therefore further bolster ZAR.

The GBP/ZAR exchange rate will continue to be driven by coronavirus and Brexit developments this week. Any signs of Covid-19 cases increasing, or rising fears of a UK-EU no-deal, could drag the Pound lower.

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