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Pound South African Rand (GBP/ZAR) Exchange Rate Slides Ahead of SARB Rate Decision

May 21, 2020 - Written by John Cameron

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Falls Ahead of SARB Rate Decision

The Pound Sterling South African Rand (GBP/ZAR) exchange rate slumped by around -0.3%, leaving the pairing trading at around R21.8639.

The South African Rand remained under pressure on Thursday as traders awaited this afternoon’s interest rate decision.

Markets expect the South African Reserve Bank (SARB) to slash rates by 50 basis points, taking interest rates to 3.75%.

However, the Rand made some gains, and in a note, chief trader at Standard Bank Warrick Butler wrote:

‘I think the boss [Governor Lesetja Kganyago] will err on the side of caution. If this is indeed the case, then I expect it to be Rand and bonds supportive purely due to the idea that a 100 bps was also considered to be a possibility by the market.’

This left the Rand weaker after the currency was able to rally to a five-week high in the previous session.

ZAR sentiment was buoyed earlier this week as markets were increasingly optimistic about a coronavirus vaccine. Added to this, the easing of lockdown restrictions also boosted global risk appetite.

However, gains were also limited due to weak economic indicators and increasing tensions between the United States and China.

Tensions have soured in recent weeks after President Donald Trump attacked Beijing’s handling of the coronavirus pandemic. This spooked already cautious investors and weighed on the Rand.

Sterling (GBP) Slides as Traders Continue to Fret Over Negative Rates

The Pound slumped against the risk-sensitive Rand as traders continued to worry weak inflation would drive the Bank of England (BoE) to take rates below zero for the first time.

Sterling was able to make slight gains after flash PMI data revealed that while the rapid downturn in the private sector continued this month, the speed of the decline eased. However, these gains were quickly reversed and GBP slumped against the Rand.

Britain’s PMI increased from a dire 13.8 in April to a two-month high of 28.9 in May, offering GBP some support.

Commenting on this morning’s data, Group Director at CIPS, Duncan Brock said:

‘The minor easing in the downturn compared to last month’s figures only serves to highlight the depth of the fall in April’s output and does not signal that the pathway is clear for an improvement in the manufacturing and services sectors.

‘This month saw another steep fall in overall business activity, surpassing for the third time the rates of decline seen during the global financial crisis in 2009. No new orders, premises shut down and furloughed staff unable to return to work were at the heart of the desolation as business struggled to continue with two hands tied behind their back.

‘As the sectors prepare for a further easing in restrictions and becoming covid-ready for staff to return, the danger on the horizon is a second wave of infections threatening the health of the nation and dampening consumer confidence still further.’

Pound South African Rand Outlook: SARB Rate Decision in Focus

Looking ahead, the South African Rand (ZAR) could extend gains against the Pound (GBP) following South Africa’s interest rate decision.

If the South African Reserve Bank (SARB) cuts rates by 50 basis points after talk of a 1% cut, it could offer ZAR support.

Meanwhile, on Friday morning Sterling could edge lower following the release of Britain’s retail sales data.

If sales plummet due to the coronavirus, it will send the Pound South African Rand (GBP/ZAR) exchange rate lower.

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