Pound South African Rand (GBP/ZAR) Exchange Rate Falls as Traders Flock to Riskier Assets

June 3, 2020 - Written by John Cameron

STORY LINK Pound South African Rand (GBP/ZAR) Exchange Rate Falls as Traders Flock to Riskier Assets

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Slides as Investors Bet on Strong Economic Recovery

The Pound Sterling South African Rand (GBP/ZAR) exchange rate slumped by around -0.6% on Wednesday. This left the pairing trading at around R21.4569.

The South African Rand was able to make gains today as investors continued to bet on a strong economic recovery.

While investors continued to eye US-China relations and protests in the United States, risk appetite rose.

Riskier assets such as the Rand were offered further support as data revealed China’s services sector returned to growth last month. This was the first month since January the sector posted growth.

Meanwhile, disappointing data from South Africa showed private sector activity slumped once again in May.

This left the PMI at a record low as new sales plummeted during the nationwide lockdown. South Africa’s PMI fell from 35.1 in April to 32.5 in May, the lowest level since the survey began in 2011.

According to Markit’s economist, David Owen:

‘Most notably from the latest survey results, business sentiment regarding the 12-month outlook for activity turned negative for the first time in the series.

‘As such, firms are increasingly concerned that the extended lockdown period may hurt business activity for some time.’

Sterling Slides as Brexit Continues to be ‘Major Headache’ for GBP

The Pound edged lower against the risk-sensitive Rand despite rising to a one-month high against the safe-haven US Dollar (USD).

Sterling was offered some support after signs the UK may be willing to compromise during the latest round of UK-EU trade talks.

The country is expected to make compromises on key sticking points including fisheries and trade rules as the fourth round of talks begins.

However, ING analysts warned the recent Pound rally could be short-lived as Brexit continues to be a ‘major headache for the Pound.’

ING analysts also noted:

‘GBP has enjoyed some temporary out-performance on reports of more flexibility in the UK Brexit position, but we doubt GBP can hold onto gains.’

However, disappointing PMI data saw Sterling edge lower against ZAR as the economy remained in a severe downturn in May.

While the pace of the downturn eased, Markit’s data showed the country’s PMI composite remained firmly in contraction.

The PMI composite edged up from April’s all-time low of 13.8 to 30 in May.

According to Group Director at the Chartered Institute of Procurement and Supply, Duncan Brock:

‘May’s survey data painted a deeply concerning picture of a lockdown slowdown across the service sector as employment dropped at the second fastest rate on record, pipelines of new work were woefully empty and business confidence continued to suffer.

‘As restrictions are eased, there is still extreme uncertainty about how the pandemic will pan out. Continued anxiety about the coronavirus means consumer spending may not be the wind beneath the sails of any immediate return to pre-virus economic activity.’

Pound South African Rand Outlook: Risk Appetite and Brexit Negotiations in Focus

Looking ahead, the Pound (GBP) could suffer further losses against the South African Rand (ZAR) as trade talks between the UK and EU continue.

If reports reveal London and Brussels are not closer to reaching an agreement, and sticking points remain, Sterling will slide.

Meanwhile, risk appetite could continue to grow despite ongoing US-China tensions and protests in the United States.

If traders continue to flock to riskier currencies such as the Rand, the Pound South African Rand (GBP/ZAR) exchange rate will fall.

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