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Pound South African Rand (GBP/ZAR) Exchange Rate Rises as Investor Focus Shifts Back to Hong Kong’s New Security Law

May 28, 2020 - Written by John Cameron

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Jumps as Beijing Imposes Security Law on Hong Kong

The Pound Sterling South African Rand (GBP/ZAR) exchange rate rose by around 0.7% higher, leaving the pairing trading at around R21.4214.

The risk-sensitive Rand edged lower against a weaker Pound on Thursday as global risk appetite declined as investors focused on deteriorating relations between the US and China.

Hopes for an economic recovery from the coronavirus pandemic were offset by increased tensions over Beijing’s decision to impose a new security law on Hong Kong.

China’s parliament approved a national security law on Hong Kong which threatens the country’s special status under US law, and will likely see a strong response from Washington in retaliation.

According to Benjamin Quinlan, managing partner at Quinlan & Associates:

‘We expect China’s move to have considerable implications for Hong Kong with the threat of higher tariffs, sanctions and tougher investment and visa rules between Hong Kong and the United States.’

This threatens to hurt global economic activity further as the world attempts to recover from the coronavirus pandemic.

Sterling (GBP) Rises despite Brexit Worries and Negative Rate Speculation

The Pound was able to edge higher against the risk-sensitive Rand after reports revealed London and Brussels were at a standstill in Brexit negotiations.

GBP remained under pressure against its main rivals including the US Dollar (USD) and Euro (EUR) after Britain told the EU it still needed to break a fundamental impasse in order to reach a trade deal by December.

The Times newspaper reported negotiations would continue in person in Brussels next month.

However, Sterling has been left on the backfoot, plunging to its lowest levels in more than three decades as the currency has been left dampened. Brexit trade talk worries, the possibility of the Bank of England (BoE) sending rates below zero and rising public debt have all weighed on GBP.

Wednesday saw BoE Governor, Andrew Bailey state the bank had the right to consider taking rates below zero for the first time in order to offer the economy some much needed support after the coronavirus crisis.

However, the bank’s governor did state the BoE would need to carefully look at the effects of taking rates into negative territory for the first time.

In a note to clients, Commerzbank’s head of FX and commodity research, Ulrich Leuchtmann stated:

‘The question whether the BoE key rate is slightly above or below zero does not really matter.

‘Monetary policy in the UK - just like almost everywhere else in the world - has pretty much reached the end of the line.’

According to futures data, the market has turned increasingly short on GBP over the last few months.

In a note to clients, strategist for Societe Generale, Kit Juckes wrote:

‘Sterling’s only support is the size of the short positions, and thin month-end markets magnify that support, but that doesn’t change the fundamentals.’

Pound South African Rand Outlook: Will Weak Consumer Confidence Send ZAR Lower?

Looking ahead to Friday, the South African Rand (ZAR) could suffer further losses against the Pound (GBP) following the release of consumer confidence data.

If consumer confidence plummets in the second quarter of 2020, the Rand will edge lower at the end of the week.

Meanwhile, tensions between the United States and China could continue to weigh on risk appetite and send ZAR lower.

If relations deteriorate further over China’s security law for Hong Kong, it will send the Pound South African Rand (GBP/ZAR) exchange rate lower.

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