July 30, 2020 - Written by Tim Boyer
STORY LINK GBP to ZAR Exchange Rate Hits 2-Month-Best as ‘Second Wave’ Coronavirus Signs Worsen
While a dovish Federal Reserve would normally lead to higher demand for currencies correlated with risk, the British Pound to South African Rand (GBP/ZAR) exchange rate has jumped even higher today after spending much of this week holding its ground and edging up. The Pound outlook remains filled with uncertainties, but the risky emerging market correlated South African Rand is being hit by the global market’s worsening coronavirus jitters.
After opening this week at the level of 21.31, GBP/ZAR briefly dipped. However the pair was able to sustain last week’s advances and yesterday GBP/ZAR saw further gains.
Then, this morning, GBP/ZAR has seen yet another jump in demand as global coronavirus fears intensify once more. At the time of writing on Thursday, GBP/ZAR trends near the level of 21.88. This is the best level for GBP/ZAR since the second half of May, over two months ago.
GBP Exchange Rates Climbing despite Lack of Strong Domestic Support
Investors are buying the Pound across the board today. This is despite a lack of domestic support for the embattled British currency.
With coronavirus and Brexit uncertainties still dominating Britain’s outlooks and weighing on economic hopes, the Pound has instead been benefitting largely from weakness in rival currencies.
For example, markets are increasingly seeing the US coronavirus situation as considerably worse than Britain’s. This has been leading to a strong Pound rebound against the US Dollar (USD), which is a big part of this week’s Sterling gains.
Of course, today’s GBP/ZAR gains are also due to Rand weakness.
However, despite these optimistic factors, analysts continue to say that the Pound outlook remains weak overall.
According to Thu Lan Nguyen, Senior FX Strategist at Commerzbank, Sterling’s strength may be little more than a little correction:
‘Overall the Pound remains the underperformer in the G10 space so I would expect at some point that we see a little bit of a correction from time to time, but generally it has been quite weak,’
Other analysts say that the uncertainty over whether or not Britain will avoid a no-deal Brexit is not likely to fade from the Pound’s gloomy outlook any time soon. According to Dean Turner, Economist at UBS Global Wealth Management:
‘The fact we haven’t seen much move in that cross (EUR/GBP) suggests a risk premium around Brexit negotiations,’
ZAR Exchange Rates Slump as Fears of Coronavirus ‘Second Wave’ Intensify
The South African Rand has seen deeper weakness this week, as the global coronavirus situation develops and major banks once again become more concerned about its potential economic impacts.
The South African Rand is a currency often correlated to risk and emerging market sentiment. It has seen a strong July overall due to risk-on movement, but has been slumping over the past week as coronavirus fears worsen.
Last night’s Federal Reserve
policy decision also spooked investors. While a dovish tone from the Fed would normally boost risk-sentiment, the Fed’s concerns of prolonged weakness in the US economy have instead caused some risk-correlated currencies to fall.
According to a note from Nedbank analysts:
‘Although the major currency pairs have held steady after the (Federal Reserve statement) last night, the Rand, along with its emerging-markets peers, is trading marginally weaker relative to the USD, although they have largely had a better month overall thus far against the USD,
This is as the second round of COVID-19 infections plagues the world’
GBP/ZAR Exchange Rate Forecast: Shifts in Risk-Sentiment Remain a Focus
Investors are buying the Pound to Rand exchange rate higher and higher this week, but Sterling’s appeal is limited.
The Pound is being bolstered by weakness in rivals as well as a little rebound from its recent cheapest levels. However, the currency’s outlook remains highly unappealing and filled with uncertainties overall.
As a result, investors may lack much reason to keep buying the Pound higher without some more optimistic UK developments.
As July comes to an end and August begins, markets will once again focus on Brexit and the possibility of developments in UK-EU Brexit negotiations.
Optimistic trade negotiations and the possibility of a deal actually being met are among the things that are most likely to cause a sustained rise in the Pound.
Tomorrow’s South African trade balance report could cause slightly stronger Rand demand if it impresses.
Besides that, the South African Rand is more likely to strengthen if optimistic coronavirus developments lead to higher demand for risk and emerging market currencies.
Looking ahead, Pound to South African Rand exchange rate investors are also awaiting next week’s UK and South African PMI stats.
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TAGS: Pound Rand Forecasts