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Near 2-Month-Worst for GBP to ZAR Exchange Rate after BoE and SARB Decisions

September 18, 2020 - Written by Ben Hughes

Despite a lack of strong South African data lately, the South African Rand has been one of the best performing major currencies in recent weeks and the British Pound to South African Rand (GBP/ZAR) exchange rate has been trending lower. Sterling has been attempting to rebound on Brexit hopes, but the pair’s movement has been dominated by the Rand’s own rebound attempts as investors digest the latest coronavirus hopes and central bank news.

While the Pound has regained some ground against many major rival currencies, GBP/ZAR has continued to tumble. Since opening this week at the level of 21.43, GBP/ZAR has trended with a downside bias.

At the time of writing on Friday, GBP/ZAR is trending near a low of 20.90. This is the worst level for GBP/ZAR in almost two months, since July. It follows last week’s movement, when GBP/ZAR fell from the level of 22.03. Overall, GBP/ZAR has lost well over a Rand this month so far.

GBP Exchange Rates Struggle as UK Retail Outlook Remains Filled with Concerns

Against many major currencies, the Pound has seen a rebound from its worst levels over the past week. Investors have been buying the Pound on hopes that the UK and EU will still be able to reach an agreement on a post-Brexit trade relationship.

This was partially due to comments from European Commission President Ursula von der Leyen. According to Yohay Elam, Analyst at FXStreet:

‘These words by European Commission President Ursula von der Leyen have given Sterling another boost. The Pound was already on an upward path after PM Boris Johnson compromised with members of his Conservative Party after they expressed concerns about a controversial piece of legislation.’

However, Sterling’s gains are still limited. There has been no solid optimistic Brexit news.

On top of this, the latest UK retail sales results were mixed. The data was better than some expected, but markets remain anxious about how sales will be impacted by the coronavirus pandemic in the coming months.

Concerns are especially highs as a second wave of infections hits Britain.

Howard Archer, Chief Economic Advisor at the EY ITEM Club, said:

‘Consumers may adopt a cautious approach to major discretionary purchases given the uncertain economic environment and heightened job insecurity. Consumer confidence currently remains at a relatively low level despite coming off recent long-term lows. Additionally, spikes in Coivd-19 cases over the coming months could magnify consumer caution and weigh on shopper footfall.’

ZAR Exchange Rates Benefit from South African Reserve Bank’s (SARB) Stance

The South African Rand has been one of the best performing major currencies in recent weeks. This week has seen the Rand only furthering its gains.

Investors have been piling into the Rand so much that the currency is trending near its best levels since before the coronavirus pandemic against some other major rivals, like the weak US Dollar.

Yesterday’s South African Reserve Bank (SARB) policy decision only further boosted the Rand’s appeal. The bank left policy unchanged, rather than looking to loosen policy further like many other central banks across the globe had been doing.

According to a trader at IG Group:

‘Sarb’s reactive nature is encouraging for the SA economy. This bodes well for the Rand through Q4 and 2021,

Coupled with an increase in global risk appetite and possible vaccine hopes, I believe there’ll be a steady appreciation of the Rand.’

The Rand also benefitted slightly from news that South Africa’s lockdown would continue to ease.

GBP/ZAR Exchange Rate Forecast: Coronavirus Developments Remain in Focus

Next week’s economic calendar will be much quieter, with only a few noteworthy ecostats due for publication.

UK PMI projections for September will be published on Wednesday. These will give investors a better idea of how Britain’s economy is weathering the coronavirus pandemic this month and could be fairly influential for the Pound outlook.

However, the week’s only notable South African stats will be business confidence figures due on Tuesday.

With South African data unlikely to be that influential, the South African Rand will continue to be driven by developments in domestic and global coronavirus situations.

If South Africa’s coronavirus situation continues to improve, the Rand may be in for continued gains.

Coronavirus developments will remain a focus for the Pound as well. For example, if Britain’s infection rate continues to worsen, lockdown speculation may rise which could hurt the Pound.

Of course, any surprising developments in UK-EU Brexit negotiations could also influence the Pound to South African Rand exchange rate.
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