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GBP to ZAR Exchange Rate Rebounds Again as Risk-On Rally Short-Lived

September 2, 2020 - Written by Ben Hughes

After falling back from its best levels yesterday, the British Pound to South African Rand (GBP/ZAR) exchange rate is once again rebounding today. Markets have little reason to keep buying the Pound, but it has been able to gain against risk-correlated rivals as investors adjust positions on riskier assets in recent sessions. The South African Rand’s overall appeal has been weakening due to global coronavirus developments, so its gains on risk-sentiment were also limited.

Last week saw GBP/ZAR ultimately close the week lower after fluctuating. GBP/ZAR opened the week at the level of 22.45 and spent most of the week lower, closing at 22.14. Last week also saw GBP/ZAR briefly touch on an August low of 22.00.

This week’s movement has been even more mixed so far, but the pair has generally trended with an upside bias. Yesterday, GBP/ZAR touched on a high of 22.86 before slipping again. Today, GBP/ZAR is once again attempting to advance and is trending in the region of 22.46.

GBP Exchange Rate Rally Attempts Trip as Markets Await Bank of England (BoE) Speeches

Investors have been buying the Pound this week, despite a lack of solid fresh support for the British currency. It has been largely due to movement in rival currencies.

For example, investors have been buying the Pound over the US Dollar (USD). This is because as the Federal Reserve outlook becomes more and more dovish in the long-term, markets predict that the UK recovery outlook may be comparatively better than US recovery potential.

The coronavirus pandemic has hit the UK and US hard, but analysts are hoping that the UK outlook is improving. This has helped the Pound to capitalise on the US Dollar’s weakness lately.

Today’s UK data showed that domestic housing prices rose more than expected, hitting all-time highs.

The data had little impact on the Pound however, as Sterling investors are eagerly awaiting speeches from Bank of England (BoE) officials in coming sessions. Policymakers including Governor Andrew Bailey will be making fresh comments.

Markets are anxious that continued negative interest rate speculation could weigh on markets. According to Adam Cole, Chief Currency Analyst at RBC, the speeches:

‘are likely to keep the debate on negative policy rates alive in the UK’

ZAR Exchange Rates Fall Back as Market Risk-Appetite Fades

Global markets had been buying risk-correlated currencies for much of the past week. The latest risk-rally came in reaction to the Federal Reserve’s hints of a long period of broad dovishness.

Investors also took some risks yesterday, when currencies rebounded and investors adjusted positions amid profit-taking. This caused the South African Rand to attempt a rebound.

The Rand also benefitted slightly from hopes that South Africa could recover from the pandemic more easily if political reforms are made.

However, the risk-rally appears to have come to an end for now. Today, the South African Rand continues to be weighed heavily by concerns which still dominate South Africa’s outlook.

According to Elisabeth Andreae from Commerzbank:

‘The Rand has benefited from signs of the strengthened position of the president as this kindles hopes that the urgent reforms can now finally get under way. The continued (global) risks are likely to limit the potential for ZAR recovery in our view though,’

As well as concerns about global coronavirus risks impacting South Africa though, the Rand is also being weighed by South Africa’s domestic political uncertainty. According to Peter Attard Montalto from Intellidex:

‘Most of what was announced on corruption is already resolution or ANC rule, and so we see the dial flicking on dealing with corruption, but the bar has not yet been met,’

GBP/ZAR Exchange Rate Forecast: PMIs and Bank of England News Ahead

This evening and tomorrow, many Bank of England (BoE) officials will be making speeches. Any surprising comments from the bank regarding UK domestic policy or hints at negative interest rates have the potential to impact the Pound for the coming sessions.

For example, if the bank hints that it will leave negative policy on the table, this speculation is likely to weigh on the Pound. On the other hand, signals that the bank will avoid those policies could make the Pound stronger instead.

Some key UK data due tomorrow could also influence the Pound’s appeal.

Tomorrow will see the publication of Britain’s final August services and composite PMIs from Markit. If the data beats forecasts it could bolster hopes that Britain’s economy is weathering the coronavirus pandemic better than expected.

The South African Rand, on the other hand, will continue to be influenced by shifts in global coronavirus sentiment, as well as South African political news.

The Pound to South African Rand exchange rate will of course remain sensitive to potential Brexit developments as well.
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