Pound South African Rand (GBP/ZAR) Exchange Rate Falls Ahead of Wednesday’s Fed Meeting

April 28, 2020 - Written by John Cameron

STORY LINK Pound South African Rand (GBP/ZAR) Exchange Rate Falls Ahead of Wednesday’s Fed Meeting

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Slumps Ahead of Fed Meeting

The Pound Sterling South African Rand (GBP/ZAR) exchange rate slumped by around -0.5% this afternoon, leaving the pairing trading at around R23.2351.

The South African Rand was able to edge higher against the Pound despite weakening earlier as traders worried how the country will provide the economy with a 500 billion Rand rescue package.

Thu Lan Nguyen, emerging-market analyst at Commerzbank noted that ‘South Africa remains fiscally vulnerable’.

The economy was already in bad shape before the coronavirus pandemic hit, and this year’s budget is expected to hit an 18-year high and state firms such as South African Airways and Eskom were a drain on public spending.

However, the Rand was able to make gains as risk appetite rose ahead of central bank meetings this week.

Added to this oil prices were mixed today as optimism about the easing of coronavirus lockdowns reassured traders.

However, oil markets remained cautious as oil storage capacities filled up fast and that supply cuts were not deep enough to offset the falling demand.

Sterling (GBP) Slides Ahead of Fed and ECB Meetings

The Pound slipped against the South African Rand as markets turned their attention to tomorrow’s US Federal Reserve meeting and Thursday’s European Central Bank (ECB) meeting.

Policymakers from both central banks are expected to provide further stimulus in order to help their economies fight economic impact of the coronavirus crisis, which boosted risk appetite.

While the this benefitted the Pound, allowing it to make gains against the safe-haven US Dollar (USD) and Euro. However, this did little to stop the risk-sensitive South African Rand making gains against the Pound.

The US central bank and ECB are expected to follow the lead of the Bank of Japan (BoJ) which expanded stimulus to help companies hurt by coronavirus at the start of this week.

Commenting on this, BMO Financial Group’s European head of FX strategy, Stephen Gallo noted:

‘I would assume that the Pound is tracking risk assets higher. On the whole this week, given all the central bank meetings that are coming, anyone who had risk-off trades on, they probably would be trimming some of that exposure. You don’t fight the central banks.’

Meanwhile, gains were capped after Prime Minister Boris Johnson warned against lifting the coronavirus lockdown measures too early.

Although, data from Monday provided markets with support as the coronavirus death toll in the UK saw the lowest daily increase in over four weeks.

Pound Rand Outlook: US Federal Reserve Meeting in Focus

Looking ahead, the South African Rand (ZAR) could continue to make gains against the Pound (GBP) following the US Federal Reserve’s monetary policy meeting.

If Fed policymakers provide the US economy with further stimulus measures to help offset the impact of the Covid-19 it will boost risk appetite and traders will flock to riskier currencies such as the Rand.

Meanwhile, disappointing South African inflation could weigh on the Rand. If March’s Producer Price Index slumps further than expected, the Pound South African Rand (GBP/ZAR) exchange rate could claw back some losses.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Rand Forecasts