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GBP to ZAR Exchange Rate Bounces Higher as South African Reserve Bank Cuts Rates

July 23, 2020 - Written by Ben Hughes

Despite broad weakness in the Pound outlook, the British Pound to South African Rand (GBP/ZAR) exchange rate has rebounded today. As markets digest news that the South African Reserve Bank (SARB) cut South Africa’s interest rates to its lowest levels on record, the South African Rand came under fresh pressure. The latest UK data has done little to boost Pound demand though and tomorrow’s upcoming UK data could cause weakness as well.

Since opening this week at the level of 20.97, GBP/ZAR has seen highly mixed and volatile movement. GBP/ZAR briefly jumped higher at the beginning of the week before tumbling again and hitting a quarterly worst level of 20.78 yesterday.

However, after touching on this worst level since March, GBP/ZAR experienced a solid rebound. GBP/ZAR rebounded even further today, briefly reaching a high of 21.15. This was the best level for the pair in over a week. At the time of writing, GBP/ZAR was still trending above the week’s opening levels in the region of 21.06.

GBP Exchange Rates Struggle to Sustain Gains as Coronavirus and Brexit Uncertainties Persist

The Pound has been attempting to rebound from its worst levels for much of this week. However, the British currency’s appeal remains heavily limited due to a number of both global and domestic factors.

Fears around a ‘second wave’ of coronavirus infections, as well as skepticism over progress in developing a vaccine, have both left the Pound less appealing.

On top of this, concerns over the UK government’s handling of Brexit and the possibility of a no-deal Brexit at the end of the year have once again flared up this week.

It comes amid reports that the UK government could give up on UK-EU trade deal negotiations. Even though this may be a negotiation tactic, analysts are increasingly doubtful that Britain will see a soft Brexit at the end of the year.

The latest UK data hasn’t given investors much to be optimistic over either. Today saw the Confederation of British Industry (CBI) publish its latest UK industry and retail data, and the figures weren't as strong as some forecasters predicted.

While the data did indicate that manufacturers are feeling a little more upbeat, it also showed that many firms still see significant uncertainty ahead. According to Tom Crotty, Group Director at INEOS:

‘Government policy measures have proved vital in supporting manufacturers during the crisis, but it’s clear that many firms are still in distress. As the UK economy begins to recover, it will remain vital that the government continues to work with firms to both shore up near-term cash flow and build a stronger, more sustainable manufacturing sector.’

ZAR Exchange Rates Slip as South Africa’s Interest Rates Cut to Record Lows

The South African Rand was knocked lower today, as the South African Reserve Bank (SARB) held its anticipated July policy decision.

As was widely expected, the bank announced that it was again cutting South African interest rates. The key rate was chopped from 3.75% to 3.50%, the lowest SARB interest rate on record.

The South African Rand had been resilient on market hopes for a recovery from the coronavirus pandemic this week. However, the Rand fell after the news despite it being a widely expected move to markets.

The Rand’s weakness today could be partially due to some dovish comments from SARB Governor Lesetja Kganyago. Following the policy decision, Kganyago indicated monetary policy alone may not be enough for South Africa’s economy:

‘Monetary policy cannot on its own improve the potential growth rate of the economy or reduce fiscal risks. These should be addressed by implementing prudent macroeconomic policies and structural reforms that lower costs generally, and increase investment opportunities, potential growth and job creation,’

GBP/ZAR Exchange Rate Forecast: Strong UK Data Could Help Solidify Sterling Gains

With all of this week’s South African news published, the Pound to South African Rand exchange rate will be influenced more by UK news and global coronavirus developments before the end of the week.

Pound investors will be closely watching for any potential Brexit developments today, with UK-EU Brexit negotiations set to end for the week.

If there are no notable Brexit developments the Pound could see continued pressure. However, the Pound could still find support if tomorrow’s key UK data impresses investors.

Britain’s June retail sales results, as well as July PMI projections, will be published. If these results come in stronger than expected, the UK outlook could improve and this may give the Pound a little fresh support.

On the other hand though, poor UK data might only add to the Pound’s woes.

GBP/ZAR may also recover if global risk-aversion intensifies and leads to South African Rand weakness.

For more news to influence the Rand though, Pound to South African Rand exchange rate investors will be awaiting next week’s South African inflation data.
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