November 6, 2020 - Written by Ben Hughes
STORY LINK GBP to ZAR Exchange Rate Stuck Near 6-Month-Worst as Markets Bet on Biden Election Win
While the outcome of the US 2020 Presidential Election remains unclear, the British Pound to South African Rand (GBP/ZAR) exchange rate continues to trade near its worst levels on bets of a Biden win. Markets have been rallying again since yesterday as Democrat Party challenger Joe Biden’s lead rose and a clear outcome was seen as becoming more likely. The Pound remains one of this week’s most unappealing major currencies, as domestic coronavirus and Brexit jitters are keeping the currency perceived as risky.
After opening this week at the level of 21.01, GBP/ZAR has spent most of the week trending with a downside bias. GBP/ZAR briefly edged higher to the level of 21.22 when market risk-aversion intensified, but ultimately the Pound’s weakness made the Rand benefit from risk-sentiment in recent sessions.
Yesterday, GBP/ZAR touched on a low of 20.50 - the worst level for the pair since March. While GBP/ZAR has recovered, it has only gained just slightly. At the time of writing, GBP/ZAR trends in the region of 20.66.
GBP Exchange Rates Choppy amid Bank of England and Brexit Uncertainty
The highly uncertain outlook for Britain’s economy and politics are leaving the Pound as one of this week’s weaker major currencies.
Markets have been filled with uncertainty already, due to the tighter than expected US 2020 Presidential Election.
As a result, Sterling’s outlook being dominated by a new coronavirus lockdown as well as concerns over a UK-EU Brexit deal are leaving the Pound especially unappealing. Investors looking to make money on riskier assets are looking elsewhere with too much uncertainty in the Pound.
Yesterday’s Bank of England (BoE)
policy decision didn’t do much to support the Pound either. In reaction to the latest UK coronavirus lockdown, the bank ramped up its quantitative easing (QE) program.
This was generally unsurprising, as was the bank lowering its UK growth and job market expectations. However, it was still disappointing, and markets are becoming more concerned about the state of Britain’s economy.
Speculation also rose that the BoE could be forced to introduce negative interest rates if the economic outlook continues to worsen into 2021.
Still, some Analysts, such as Marshall Gittler from BDSwiss Group, felt it significant that negative rates went unmentioned:
‘While the (BoE’s) Monetary Policy Committee (MPC) increased the Asset Purchase Facility by GBP 150bn, more than the GBP 100bn that the market expected, there was no change in rates and, significantly, no mention of negative rates,
Moreover the MPC projected that inflation would return to the target 2% level by the end of next year even without further rate cuts. Now that that’s out of the way, it’s back to worrying about Brexit.’
ZAR Exchange Rates Benefit from Speculation of Joe Biden Election Victory
While the Pound is being weighed by economic and political uncertainties this week, other currencies correlated to risk and trade, like the South African Rand, have been benefitting.
The South African Rand briefly slipped in the middle of the week as the US 2020 Presidential Election was much tighter than expected.
However, as election results continue to be counted, hopes for a clear win for Democrat Party challenger Joe Biden continue to rise. This is supporting risk-sentiment, boosting the South African Rand.
While the Rand has slipped just slightly from its best levels, it is largely holding its ground today.
Analysts are generally impressed with the Rand’s performance on risk-taking this week. According to Andre Botha, Senior Dealer at TreasuryONE:
‘For now, we think the ZAR has had a very good run and could possibly give back some of the gains in the short term before making a run for better levels again,’
GBP/ZAR Exchange Rate Forecast: US 2020 Presidential Election Results Remain the Focus
Votes and results from the US 2020 Presidential Election continue to trickle in. Some analysts speculate that more solid results may not even be known for weeks.
However, if more States are called for Democrat Joe Biden before the end of the week, hopes for a clear Biden win may surge and investors may be more willing to take risks.
This would support further gains for the South African Rand, but would likely also help the Pound’s outlook to calm slightly.
If there are less US political uncertainties, UK-EU Brexit deal talks are more likely to take focus for the Pound. Optimism for a deal to be made could help the Pound recover from the poor performance it saw over the past week.
Of course, there is still the possibility of the US Election taking an unexpected turn.
If the race unexpectedly tightens or US President Donald Trump attempts to delegitimise the result, investors may be hesitant to take risks. This could knock risk-sentiment and make the Pound to South African Rand exchange rate even more volatile.
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TAGS: Pound Rand Forecasts