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GBP to ZAR Exchange Rate Kept Supported by Fresh Risk-Sentiment

June 16, 2020 - Written by Ben Hughes

A lack of strong support for the Pound made it more difficult for the British Pound to South African Rand (GBP/ZAR) exchange rate to hold its ground today. Some hopeful coronavirus and Brexit developments have not been enough to keep the Pound buoyed, as a rise in market risk-sentiment helps the South African Rand to recover some of today’s losses.

Market risk-aversion and safe haven demand, combined with poor South African data, ultimately led GBP/ZAR to advance last week. GBP/ZAR opened last week at the level of 21.36 and closed the week higher, in the region of 21.39.

This week’s movement has been more bullish overall so far, but the pair is struggling to hold its ground. GBP/ZAR has briefly climbed as high as 21.66, but at the time of writing had been knocked back again and trends in the region of 21.44.

Strong UK Jobs Data Not Enough to Boost GBP Exchange Rates

This morning saw the publication of Britain’s latest job market data. The data surprised investors by coming in stronger than expected in many key prints.

For example, Britain’s employment change figure was expected to see a contraction of around –83k, but it instead improved to 6k.

However, the unemployment rate was particularly shocking. Instead of considerably worsening due to the coronavirus lockdown, UK unemployment instead remained at an impressive 3.9%.

The figure briefly led to a surge in demand for the Pound, but it was short-lived. Many analysts noted that figures alone ignored a lot of concerning aspects in the data.

According to James Smith, Developed Markets Economist at ING:

‘The stability in the unemployment rate masks some broader weakness in other parts of the jobs report. Job vacancies have plunged, almost back to levels seen in the financial crisis. Meanwhile some experimental statistics, based on payroll data, showed around a 600,000 fall in the number of people being paid since March.

There is also growing concern about where unemployment is headed over the summer months. The government’s job retention scheme is set to be adjusted over the summer, with firms required to make a greater contribution to the wage costs of those workers who are furloughed. With social distancing rules likely to make it difficult for some firms to operate profitably during the reopening phase, there is a risk that some companies begin to make more permanent changes to their operations, and are forced to resort to redundancies.’

ZAR Exchange Rates Rebound as Risk-Sentiment Sees Fresh Boost

The South African Rand is a currency often correlated to market risk-sentiment and emerging market sentiment. As a result, it has seen high volatility lately as the coronavirus situation develops.

In the past week alone, the Rand has taken a hit from fears that a second wave of the virus could cause considerable damage to the global economy.

However, since then the Rand has already begun to recover. Speculation of how major economies could continue to tackle the pandemic, combined with strong economic data from major economies, are making investors more willing to take risks again.

Today, speculation of a huge US fiscal policy package was followed up by impressive US retail sales results. This news all made investors more confident about the US economic outlook.

According to Analysts at Deutsche Bank, risk assets have once again been advancing due to this:

‘News that the White House is considering a $1tn infrastructure proposal has seemingly also given risk assets a boost. The prospect of further stimulus was already known however the size and timing was more up in the air.

The current infrastructure funding law is due for renewal by the end of September and the House Democrats have already proposed their own $500bn proposal over five years. For now there is no detail on how long the administration’s draft would authorize spending.’

GBP/ZAR Exchange Rate Forecast: Bank of England (BoE) Decision in Focus

The Pound’s outlook remains mixed due to coronavirus and Brexit uncertainties. As a result, coronavirus developments and shifts in market risk-sentiment are likely to keep driving the Pound to South African Rand exchange rate for the next day or so.

However, Thursday’s session could be highly influential for the Pound outlook, depending on the tone the Bank of England (BoE) takes in its upcoming policy decision.

The BoE is expected to hold its June policy decision on Thursday, and is expected to indicate that quantitative easing (QE) will be ramped up in order to support Britain’s economy amid the coronavirus crisis.

However, speculation persists that the BoE could be pressured into moving towards negative interest rates. If the BoE does so much as hint that negative rates are possible, the Pound could be hit hard.

Amid a lack of South African data due in the coming days, the South African Rand is more likely to be driven by shifts in market risk-sentiment.

Overall, BoE and Brexit news, as well as of course coronavirus developments, are in focus for the Pound to South African Rand exchange rate this week.
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