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Pound South African Rand (GBP/ZAR) Exchange Rate Gains Ease as SA Budget Disappointment Fades

October 29, 2020 - Written by Frank Davies

Lingering Worries over South African Debt Keep Pound South African Rand (GBP/ZAR) Exchange Rate on Positive Footing

The fading impact of Wednesday’s South African budget speech saw the Pound Sterling to South African Rand (GBP/ZAR) exchange rate losing some of its previous momentum.

Markets were disappointed by the content of finance minister Tito Mboweni’s speech, which failed to deliver any sweeping reforms.

As Mboweni announced a significant bailout for beleaguered airline South African Airways confidence in the outlook of the South African economy deteriorated further.

With debt levels looking set to balloon further before the end of the year and the shadow of recession hanging over the economy there appeared little reason to favour the South African Rand on Thursday.

A decline in September’s South African private sector credit data added to the bearish mood of ZAR exchange rates, meanwhile.

GBP/ZAR Exchange Rate Sees Limited Gains in Spite of 13-Year High in UK Mortgage Approvals

The Pound found some support, on the other hand, thanks to a surprise increase in September’s UK mortgage approvals figure.

Approvals rose to a 13-year high of 91,500 last month, suggesting a greater level of confidence among UK households as they continued to engage with the housing market.

A smaller-than-expected decline in the latest UK car production figure offered an additional boost to the GBP/ZAR exchange rate.

However, an unexpected decline in the corresponding Bank of England (BoE) consumer credit reading ultimately undermined the impact of the day’s positive data.

With the UK government coming under increasing pressure to enact further Covid-19 restrictions in the face of rising infections the GBP/ZAR exchange rate could struggle to hold onto a positive footing.

As long as the possibility of another lockdown remains on the table worries over the economic outlook of the UK are likely to keep the Pound under a degree of pressure.

The possibility of further economic disruption in the fourth quarter looks set to weigh down the GBP/ZAR exchange rate in the days ahead.

Widened SA Trade Surplus Forecast to Boost South African Rand Appeal

However, the South African Rand could find a temporary rallying point ahead of the weekend if the latest South African trade balance impresses.

Forecasts point towards the trade surplus widening from 38.8 billion to 42 billion in September, a positive development for the struggling South African economy.

Stronger levels of trade could help to insulate the economy from its debt worries, at least in the short term.

Even so, the risk-sensitive Rand may come under renewed pressure heading into the weekend as anxiety over the upcoming US presidential election continues to mount.

As long as markets see reason to adopt a cautious outlook this should keep a floor under the GBP/ZAR exchange rate.
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