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Pound to South African Rand (GBP/ZAR) Exchange Rate Dips as Risk-On Sentiment Buoys ZAR

July 9, 2020 - Written by John Cameron

GBP/ZAR Exchange Rate Sinks Despite Plummeting South African Manufacturing Production Data

The Pound to South African Rand (GBP/ZAR) exchange rate dipped today, with the pairing currently trading around R21.33.

The South African Rand (ZAR) rose today as global economic recovery hopes lifted risk-on sentiment, boosting the risk-averse South African currency.

ZAR has benefited from a sell-off of the US Dollar (USD) as investors seek out high-yield emerging currencies.

Nevertheless, there are growing concerns for the South African economy following a recent spike of coronavirus cases worldwide. As a result, ZAR investors are becoming increasingly cautious as the global economic situation remains uncertain.

In South African economic news, today saw the release of the Manufacturing Production Index, which plummeted from -5.4% to -49.4%.

Seifsa economist Marique Kruger commented:

‘The outlook is dire, especially given the need for companies to remain resilient against the backdrop of a weak economy that is also under pressure owing to the coronavirus pandemic.’

Pound (GBP) Steady Following Yesterday’s Summer Statement

The Pound (GBP) failed to gain on the South African Rand (ZAR) today despite growing hopes for the British economy following UK Chancellor Rishi Sunak’s announcement of a £30 billion rescue package for retaining employment.

Mr Sunak said:

‘People need to know that although hardship lies ahead, no-one will be left without hope.’

However, since yesterday there have been growing doubts over whether the new package will help Britain’s struggling economy. With Brexit uncertainty and worries over Covid-19’s effect on the economy, the outlook for GBP is beginning to darken.

Meanwhile, there have been growing reports of major retailers like Boots and John Lewis facing mass closures and the cuttings of jobs.

Lucy Powell MP, Labour’s Shadow Minister for Business and Consumers, commented:

‘The Chancellor’s statement was a missed opportunity to protect jobs with properly targeted support for the businesses and people that need it.’

‘Ministers must acknowledge that different parts of our economy face very different challenges in the months ahead and come forward with a real plan to protect jobs in sectors fully closed or only partially reopened, and develop an urgent programme to boost retailers and save our high streets from becoming ghost towns.’

As a result of growing uncertainty over the British economy, we could see the GBP/ZAR exchange rate remain subdued into the weekend.

GBP/ZAR Outlook: Could Improving Risk Sentiment Send ZAR Higher?

The South African Rand (ZAR) will continue to be driven by risk sentiment this week. Any signs of a possible eruption of new Covid-19 cases would prove ZAR-negative.

Additionally, any signs of Chinese data improving – or a strengthening American economy – could further buoy risk sentiment and weaken the GBP/ZAR exchange rate.

The GBP/ZAR exchange rate will continue to be driven by Brexit and British economy news this week. Any signs of a possible compromise between the UK and the EU on a trade deal would prove GBP-positive.

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