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GBP to ZAR Exchange Rate Near 3-Month-Best as Risk-Aversion Keeps Rand Rattled

August 4, 2020 - Written by Tim Boyer

While market demand for the Pound has softened so far this week, the British Pound to South African Rand (GBP/ZAR) exchange rate continues to climb. Investors are selling the risk and emerging market correlated South African Rand as global coronavirus ‘second wave’ fears intensify and more major economies are showing signs of being hit hard by the pandemic once again. Still, the pair’s potential for gains is limited as many major factors weigh heavily on Sterling’s outlook.

As market risk-sentiment collapsed last week and the Pound surged, GBP/ZAR jumped from 21.30 to gain over a Rand, closing the week at the level of 22.33.

What’s more, GBP/ZAR has only continued to climb this week despite the Pound’s losses against other major currencies. GBP/ZAR is jumping again today on Rand weakness, and at the time of writing is trending near a high of 22.74.

This is the best level for GBP/ZAR in almost a quarter, since early May. If the Rand continues to weaken there may be more gains ahead, but Bank of England (BoE) uncertainty proves an obstacle.

GBP Exchange Rate Gains Limited as Britain’s Outlook Still Filled with Uncertainties

The Pound capitalised on US Dollar (USD) weakness and hopes for the UK government’s stricter stance on the coronavirus pandemic last week. It left the British currency surging across the board.

Sterling was able to climb even further against the Rand, due to broadening Rand weakness over the past week. The Rand’s continued weakness is among the reasons Sterling is continuing to climb today.

However, the Pound could have climbed even higher if not for various domestic and global uncertainties that weigh heavily on the British currency’s outlook.

Last week, Britain’s government announced new lockdown restrictions due to worsening coronavirus cases in the north of England.

According to Yohay Elam, Analyst at FXStreet, speculation for further lockdown as well as lasting Brexit uncertainties are keeping the Pound under pressure:

‘Thursday's announcement of new restrictions affecting around 4.3 million people, talk of a lockdown in London remains prevalent. Whitehall officials claim it is only a worst-case scenario, but the mere idea of slapping new limitations on one of the world's financial capitals is weighing on the Pound.

Sterling is also suffering from the lack of progress in Brexit talks, nor in trade negotiations with the US. International Trade Secretary Liz Truss is in America, for talks with Robert Lighthizer, the US Trade Representative. Expectations remain low.’

ZAR Exchange Rates Remain Unappealing as Coronavirus Pandemic Hits Risk-Sentiment

The South African Rand was throttled last week, as investors moved away from currencies correlated to risk, trade and emerging market sentiment.

As the South African Rand is often correlated to risk and emerging market sentiment, it was hit hard by the worsening global coronavirus outlook.

This is a big part of why the South African Rand slumped last week, and a lack of appeal and support in the Rand or in risk-sentiment is keeping the currency under pressure this week so far as well.

Still, as markets continue to calm from last week’s coronavirus panic, risk-aversion has slowed. The Rand is starting to steady after last week’s losses.

According to Economists at ETM Analytics:

‘Sentiment has improved tentatively with Asian equities mostly in the green while demand for the USD has paused. While this has not yet translated into any ZAR gains, it has halted the local unit’s five-session bear-run,

Investors appear to be waiting for a new catalyst to provide fresh directional impetus after the dollar lost some of its momentum overnight, meaning the market may take on a more reactive approach to the day’s trade.’

GBP/ZAR Exchange Rate Forecast: Bank of England (BoE) Decision Could Knock Pair

The Pound to South African Rand exchange rate continues to edge higher this week, as weakness in the South African Rand makes further Pound gains easier.

However, if pressure on the Pound intensifies it could retrace its gains, or even plunge.

The biggest event on this week’s economic calendar is set to be Thursday’s Bank of England (BoE) policy decision.

The BoE is not expected to many any notable changes to monetary policy. However, investors will be closely watching for changes to the bank’s tone, particularly on the possibility of even looser monetary policy.

For example, if the bank signals that it may need to expand easing due to the coronavirus pandemic, Sterling’s potential for gains will be even slimmer.

On top of this, if the BoE so much as hints that ultra-loose policy like negative interest rates are on the table, the Pound could plunge and lose much of its recent appeal.

Due to the BoE focus, Pound to South African Rand (GBP/ZAR) exchange rate investors may brush over tomorrow’s key UK services data unless it is highly surprising.
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