August 19, 2020 - Written by Ben Hughes
STORY LINK GBP to ZAR Exchange Rate Pushed to Weekly Lows as South Africa Lockdowns Unwound
Despite some stronger than expected UK data today, the British Pound to South African Rand (GBP/ZAR) exchange rate has spent most of the day slumping. Investors are returning to the South African Rand despite mixed market risk-sentiment, due to hopes that South Africa is reopening from its strict lockdown measures. Investors are also hesitant to buy the Pound too much, amid uncertainty over the direction of the Brexit process.
Unless GBP/ZAR starts seeing stronger demand again, the pair could be in for another week of losses. Last week saw GBP/ZAR open at the level of 23.02 and briefly jump to new 3 month highs, before sliding later in the week and closing nearer the level of 22.73.
Yesterday, GBP/ZAR attempted a recovery that saw it regain last week’s losses. However, GBP/ZAR’s advances were brief and at the time of writing on Wednesday the pair was trending below the week’s opening levels again.
GBP/ZAR currently trends near lows of 22.61 – the worst levels for the pair since last week.
GBP Exchange Rates Fail to Benefit from Inflation Rate Results
Wednesday morning saw the publication of Britain’s July Consumer Price Index (CPI) inflation rate report. UK inflation was expected to remain at 0.6% year-on-year, but instead unexpectedly improved to 1.0%.
The monthly inflation rate was also stronger than expected. The data came in at 0.4%, rather than the expected contraction of -0.1%.
However, despite the unexpectedly strong jump in UK inflation, analysts said it was unlikely to have any notable impact on the Bank of England’s (BoE) monetary policy plans. As a result, it had little impact on the Pound either.
Some analysts even predict inflation will fall again. According to Larry Elliott, Economics Editor at The Guardian:
‘In truth, it is a bit more complicated than that. The UK does not have an inflation problem and is unlikely to have one for some time. July’s official cost-of-living data was a one-off: the next move will be sharply down.’
The Pound’s appeal is also limited by Brexit uncertainties. Concerns are rising that a potential UK-EU trade deal could be stalled once again, leaving time dangerously close to an October deadline for reaching a deal before the Brexit transition period ends at the end of 2020.
ZAR Exchange Rates Stronger as South Africa Lockdown Begins to Unwind
Investors have been more eager to buy the South African Rand this week so far, in reaction to the latest coronavirus developments in South Africa.
South Africa saw a notably strict coronavirus lockdown in recent months, and even restricted sales on some popular items such as alcohol.
Over the weekend though, South Africa President Cyril Ramaphosa announced that the nation’s lockdowns would be eased further.
The South African Rand saw stronger demand as a result. Markets have become more optimistic about South Africa’s economic outlook as a result of the news.
According to Lukman Otunaga, Senior Research Analyst at FXTM:
‘Buying sentiment towards the local currency has been stimulated by a sweeping removal of lockdown restrictions over the weekend, while dollar weakness continues to support upside gains,’
Investors are still anxious about South Africa’s outlook overall though. Analysts believe that the pandemic has only worsened South Africa’s other crises. According to Glenda Grey, Chief Executive Officer at South African Medical Research Council:
‘We entered the lockdown in a country that was facing a recession and in a country with a fragile health system. On both counts, we were particularly vulnerable,’
GBP/ZAR Exchange Rate Forecast: Brexit and UK Data in Focus
Amid a lack of notable South African events or data expected in the coming sessions, the Pound to South African Rand exchange rate is more likely to be driven by shifts in global risk-sentiment, as well as the Pound’s appeal.
Tomorrow will see the publication of UK industrial trends orders data from the Confederation of British Industry (CBI), as well as South African building permits. These are unlikely to be highly influential.
Friday’s UK data, on the other hand, will be the most influential data of the week for GBP/ZAR investors.
UK retail sales results will be published, followed by the nation’s latest PMI projections. These results will all give investors a better idea of how Britain’s consumer and economic activity has been weathering the coronavirus pandemic over the past month.
Of course, on top of UK data, the Pound could also be influenced by potential Brexit developments.
If there are any optimistic UK-EU Brexit developments in the coming sessions, the Pound could see notable movement.
On the other hand, if there are no Brexit developments or if investors become more optimistic about South Africa’s outlook, the Pound to South African Rand exchange rate could see even further losses.
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TAGS: Pound Rand Forecasts