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GBP to ZAR Exchange Rate Rebounds from 7-Month-Worst as Market's Vaccine Excitement Cools

November 10, 2020 - Written by Ben Hughes

The South African Rand is sliding back from highs today, making it easier for the British Pound to South African Rand (GBP/ZAR) exchange rate to climb. While markets are still optimistic over yesterday’s coronavirus vaccine developments, the Pound is benefitting more from the news today while markets pull back slightly on currencies correlated with risk and emerging market sentiment like the South African Rand.

Following last week’s slide from 21.01 to 20.50, GBP/ZAR movement has been a little more mixed this week so far.

After markets opened yesterday, GBP/ZAR slipped and touched on a low of 20.04. This was the worst level for over half a year, since March.

However, the half year low was limited, and since last night GBP/ZAR has been climbing again. At the time of writing, GBP/ZAR trends above the week’s opening levels in the region of 20.67 as the pair continues to recover.

GBP Exchange Rates Benefitting from Coronavirus Vaccine and Brexit Hopes

Yesterday, Pfizer announced that its coronavirus vaccine trials were going well. Tests indicated that the company’s current vaccine trials were going both safely and effectively.

It led to a surge in market demand for assets correlated to risk, as investors bet that a coronavirus cure could be getting closer, potentially leading to the light at the end of the tunnel.

This was good news for the Pound as well, but the British currency didn’t see much reaction until this morning. As currencies more closely correlated to risk calmed, the Pound benefitted today and Sterling exchange rates rose.

According to Paul Dales, Analyst at Capital Economics:

‘An effective COVID-19 vaccine would dramatically improve the economic outlook. It may allow GDP to rise to its pre-virus level a year earlier than otherwise and mean that the unemployment rate peaks at 7% next year instead of 9%.

But while this would reduce the need for more Quantitative Easing (QE) and/or negative interest rates, we doubt the Bank of England would reverse QE or raise rates for many years.’

Sterling’s appeal was further bolstered today by the latest UK job market report.

While key unemployment figures worsened to 4.8% as expected, analysts noted that much lower than expected jobless claims figures.

They indicated that the government’s extended furlough scheme could protect many jobs over the winter, and boosted bets that Britain’s economy could weather the second coronavirus lockdown well.

ZAR Exchange Rates Slip Back from Best Levels

Over the past week, currencies correlated with risk and emerging market sentiment have seen rising demand. This has caused the South African Rand to advance, due to the Rand’s correlation with risk and emerging market sentiment.

Optimism that Joe Biden would win the US 2020 Presidential Election boosted market sentiment last week. This week, market sentiment was boosted further by news of progress in a key coronavirus vaccine trial.

The coronavirus vaccine news from Pfizer pushed the South African Rand to 6 month highs against the Pound yesterday.

However, following yesterday’s risk-rally on coronavirus vaccine hopes, markets are cooling today. Investors are also selling the South African Rand slightly from its best levels, as other currencies like the Pound benefit from coronavirus hopes for the day.

Still, the vaccine news is overall a plus for the South African Rand, especially if there are no surprise downsides. According to Charalambos Pissouros, Senior Market Analyst at JFD Group:

‘Having said all that though, we are a step closer than yesterday in finding the cure for this virus, which combined with Biden's victory, may allow investors to jump back into the action and push risk-linked assets back up,’

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

The Pound to South African Rand exchange rate has the potential to keep advancing in the coming sessions, as coronavirus and Brexit speculation could keep boosting Britain’s outlook.

If markets remain optimistic about coronavirus vaccine news, hopes for Britain’s economic outlook are likely to rise. This could keep the Pound appealing.

Of course, if hopes for a UK-EU Brexit deal continue to rise as well, the Pound is even more likely to strengthen.

Brexit is more likely to see rising focus going forward, as a UK-EU deal is expected to be reached sometime this month.

On the other hand, if no-deal Brexit fears rise then the Pound could see losses instead.

As for the South African Rand, its outlook is generally more optimistic amid the rise in coronavirus vaccine hopes. This means that the Pound’s gains against it could be limited unless Brexit optimism rises.

GBP/ZAR may also struggle to rise if upcoming UK data, such as growth rate due on Thursday, disappoints investors.

Others factors that could cause shifts in risk-sentiment, such as US political developments, could also influence the direction of Pound to South African Rand exchange rate trade in the coming sessions.
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