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GBP to ZAR Exchange Rate Tumbles Again as Risky Currencies Claw Back Losses

September 22, 2020 - Written by Tim Boyer

The British Pound to South African Rand (GBP/ZAR) exchange rate saw a jump in demand yesterday, despite the Pound’s broad weakness on fears of a second coronavirus lockdown. This was due to market risk-aversion leading to a Rand plummet, but as markets calmed slightly today the South African Rand has been clawing back some of its losses.

Unlike most Pound pairings, GBP/ZAR tumbled even lower last week. After opening the week at the level of 21.43, GBP/ZAR struggled to hold its ground and eventually tumbled lower to close the week near the level of 21.08. GBP/ZAR also touched on a low of 20.90, the worst level for the pair in two months.

This week so far though, GBP/ZAR has been trending with an upside bias. In fact, GBP/ZAR’s strong rebound yesterday saw it regain all of last week’s losses.

Today though, markets calmed and returned to currencies correlated with risk-sentiment. This helped the South African Rand to push GBP/ZAR lower again. At the time of writing, GBP/ZAR is trending near the level of 21.24.

GBP Exchange Rates Fall Versus Rand despite Coronavirus and Bank of England Hopes

This week’s Pound to Rand exchange rate movement so far has been driven largely by movement in the Rand. Yesterday’s Rand losses led to big GBP/ZAR gains, and today’s Rand rebound is pushing GBP/ZAR lower again.

However, major developments in the UK have been impacting the Pound’s movement as well.

Yesterday’s GBP/ZAR gains were limited, as market fears of a second UK lockdown to prevent the coronavirus pandemic hurt the Pound.

Today though, the Pound’s losses have been limited instead. The Pound is seeing gains against some major currency rivals due to some market relief related to the pandemic and the Bank of England (BoE), but has been falling against the Rand.

Today, the Pound recovered slightly as the UK government’s lockdown plans were comparatively less strict than those seen in March.

On top of this, the Pound benefitted from the latest Bank of England (BoE) comments. BoE Governor Andrew Bailey said that while the bank had checked that negative interest rates were possible, the bank was not planning on using them in the near future.

In today’s comments, Bailey said:

‘It would be a cardinal sin if we stated we had a tool in the box, which in practice we didn’t think we could operationally use . . . So it is no surprise we’re going to do this work.

It’s going to take time because there’s quite a lot of technical complexity.’

ZAR Exchange Rates Hit by Market Risk-Aversion

The South African Rand’s movement has been the primary cause of GBP/ZAR movement this week so far.

At the beginning of the week, investors sold the South African Rand from its recent highs in reaction to signs that the coronavirus pandemic was worsening around the world.

As fears of a second wave of infections solidified, investors started to rush towards safer assets. This safe haven rush at the beginning of the week knocked currencies correlated to risk and emerging market sentiment, including the South African Rand.

According to Warrick Butler, Chief Trader at Standard Bank:

‘Unfortunately, what transpired this weekend was a double whammy of serious concerns about the second wave of virus infections hitting the Northern Hemisphere combined with another bout of South Africa shooting itself in the foot again,’

This caused the Rand to fall yesterday.

While the South African Rand remained weak today though, markets calmed slightly from yesterday’s coronavirus panic. This is because new lockdown announcements have thus far not been as strict as feared.

As a result, investors were more willing to return to currencies associated with risk, like the Rand.

GBP/ZAR Exchange Rate Forecast: UK PMIs Could be Overshadowed by Coronavirus Developments

While the UK government announced fresh measures to tackle the coronavirus pandemic today, there is speculation that these measures could develop further in the coming days.

As a result, the Pound, which has been driven by coronavirus fears this week, is likely to remain focused on pandemic developments.

Tomorrow will see the publication of Britain’s September PMI projections from Markit. These stats will give investors the clearest idea yet of how Britain’s economy is performing amid the coronavirus pandemic this month.

However, UK PMIs could be overshadowed if there are any notable coronavirus developments.

As for the South African Rand, the currency could be driven by tomorrow’s South African business confidence data.

Overall though, global coronavirus and risk developments will remain the primary focus for the Pound to South African Rand exchange rate in the coming sessions.
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