Pound South African Rand (GBP/ZAR) Exchange Rate Falls as UK Set to Face Worst Downturn in 300 Years

May 7, 2020 - Written by John Cameron

STORY LINK Pound South African Rand (GBP/ZAR) Exchange Rate Falls as UK Set to Face Worst Downturn in 300 Years

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Falls despite Dire ZA Business Confidence

The Pound Sterling South African Rand (GBP/ZAR) exchange rate slumped by around -0.7% on Thursday morning, leaving the pairing trading at around R23.0309.

The South African Rand was able to make gains today despite data revealing that business confidence in the country plummeted to its lowest level since 1985.

April’s South African Chamber of Commerce and Industry’s (SACCI) business confidence index plummeted to 77.8 from 89.9 in March. This was the lowest since the start of the survey 35 years ago.

In a statement following the release of today’s data, SACCI noted:

‘Striking negative monthly impacts on the BCI were caused by the lower volume of merchandise exports, the weaker exchange rate of the rand, and less new vehicles sold – all mainly due to the lockdown.’

However, data from China surprised markets and boosted risk appetite.

Chinese exports increased by 3.5% despite expectations it would plummet by around -15.7%. The better than expected Chinese data sparked hopes that China will rebound quickly, which will help global growth recover.

Bank of England (BoE) Predicts GDP to Slump by -14%

Sterling suffered losses against the Rand following the Bank of England (BoE) left interest rates unchanged.

GBP was offered some support after the bank said it would be ready to take further action to help the county’s economy which is expected to face the worst economic slump in over 300 years.

The BoE expects growth to decline by around -14% in 2020, although they noted this would be ‘temporary’.

Commenting on this, head of personal finance at investment platform, Willis Owen, Adrian Lowcock noted:

‘The only good news today is that the Bank expects this economic bombshell to be short-lived, and for the economy to bounce back rapidly. However, the MPC itself concedes it is flying blind to a large extent, warning that a pandemic like this is ‘especially difficult to quantify’.’

However, the bank expects there to be a 15% pickup in 2021 which will require significant monetary and fiscal stimulus.

The Bank of England’s Governor Andrew Bailey stated:

‘However the economic outlook evolves, the Bank will act as necessary to deliver the monetary and financial stability that are essential for long-term prosperity and meet the needs of the people of this country. This is our total and unwavering commitment.’

Sterling slumped against ZAR as the BoE stated it expects a -25% plunge in British GDP between during Q2.

The bank also expects the unemployment rate in the UK to more than double in this time period, while inflation is likely to fall below 1%.

Pound Rand Outlook: Will Risk Appetite Plummet?

Looking ahead, the South African Rand (ZAR) could suffer some losses against the Pound (GBP) following the release of this afternoon’s US jobless data.

If the number of Americans claiming unemployment rises higher than expected, as companies that tried to stay afloat during the coronavirus lockdown have to lay off staff, risk appetite will plummet and weigh on ZAR.

Meanwhile, Sterling could edge lower following the release of GfK’s flash consumer confidence.

If confidence plummets in May, it will dampen Sterling sentiment and leave the Pound South African Rand (GBP/ZAR) exchange rate flat.

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