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GBP to ZAR Exchange Rate Struggles to Hold Ground as UK Outlook Remains Gloomy

June 19, 2020 - Written by Ben Hughes

Despite various factors weighing on the Pound outlook, the British Pound to South African Rand (GBP/ZAR) exchange rate has been trending higher this week. The South African Rand is being hit hard by markets looking for safer investments, as fears of a ‘second wave’ of coronavirus infections worsen. Looking ahead to next week, key data will give investors a better idea of how economies are weathering the coronavirus pandemic.

Since opening this week at the level of 21.39, GBP/ZAR has trended with an upside bias due to market safe haven demand. GBP/ZAR even touched on a high of 21.75 yesterday – the best level for the pair since the beginning of the month.

Still, GBP/ZAR is struggling to hold its ground due to the concerns in Britain’s outlook. GBP/ZAR had fallen back from its best levels this morning, and at the time of writing is trending near the level of 21.58 again.

GBP/ZAR is on track to sustain gains this week, but South Africa’s economic data is impressive next week or coronavirus fears soften again, the pair could be in for losses.

GBP Exchange Rates Struggle on Coronavirus and Bank of England (BoE) Uncertainty

Investors are hesitant to hold onto the Pound today, despite the morning’s stronger than expected UK data.

This morning’s UK retail sales results showed an unexpectedly strong rebound in May. Retail sales jumped from –18% to 12% month-on-month, rather than coming in at the expected 5.7%.

The yearly figure was also better than expected, improving from –22.7% to –13.1% rather than the forecast –17.1%.

Still, the –13.1% figure was widely concerning overall, and was enough to offset much market optimism around the report. On top of criticisms over how coronavirus is being handled in Britain, there are concerns about UK consumer confidence struggling to recover.

According to Ian Geddes, Head of Retail at Deloitte:

‘For retailers, there are two options: a difficult balancing act to between re-creating a familiar shopping experience whilst implementing and maintaining strict new hygiene practices, or innovating and re-inventing the shopping experience for a post-COVID-19 world.

Deloitte data shows that 46% of UK consumers currently feel safe visiting a store, but building on this confidence will be key for drawing more shoppers back to the High Street over the coming months.’

Yesterday’s Bank of England (BoE) news weighed heavily on Sterling too. This is because the bank indicated it was hesitant to keep doing whatever it takes for Britain’s economy.

ZAR Exchange Rates Weak as Risk-Sentiment Unravels

Investors have found the South African Rand broadly unappealing this week.

The South African Rand is a currency often correlated to market risk-sentiment and emerging market sentiment. As global fears of a ‘second wave’ of coronavirus infections worsen, investors have been selling currencies like the Rand in favour of safer assets.

Concerns over how South Africa’s economy will weather the coronavirus pandemic have only worsened as a result.

Recent data and South African news has been unable to offer the Rand much notable support either. Analysts remain anxious over how the nation will continue to handle the pandemic.

According to Warrick Butler, Chief Trader at Standard Bank:

‘It is going to be a massive task for Mboweni to juggle the country’s costs and, therefore, it is certainly prudent to take some positioning off the table given the potential for disaster,

It is easy to put the risk back on once the dust has settled.’

GBP/ZAR Exchange Rate Forecast: Key Data in the Week Ahead

The Pound to South African Rand exchange rate may have avoided losses for most of this week, but today’s dip indicates that the Pound’s weakness will keep a lid on the pair.

Britain’s coronavirus and Brexit concerns persist too much for the Pound to see much positive movement. Investors may need stronger signs of Britain’s economic resilience before they are more willing to buy the Pound again.

As a result, next week’s UK PMI results could be particularly influential.

The PMIs will be the best indication yet of how Britain’s economy is performing this month. The preliminary figures will be published on Tuesday.

If the data comes in well above forecasts, it could boost hopes for Britain’s economic resilience. Weaker data will keep investors anxious about the lasting impact of the coronavirus pandemic on Britain’s economy though.

The South African Rand, on the other hand, will remain sensitive to global shifts in risk-sentiment.

Upcoming South African data could also give investors a better idea of the nation’s economic resilience. Unemployment data is due on Tuesday, with inflation and retail stats on Wednesday.

Overall, coronavirus developments and data will be the focus for the Pound to South African Rand exchange rate next week.
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