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Pound South African Rand (GBP/ZAR) Exchange Rate Slumps as Hopes of Covid-19 Vaccine Progress Surge

November 16, 2020 - Written by John Cameron

Covid-19 Vaccine News Pushes Pound South African Rand (GBP/ZAR) Exchange Rate Lower

The Pound to South African Rand (GBP/ZAR) exchange rate came under pressure thanks to the latest signs of progress towards a viable Covid-19 vaccine.

Market confidence picked up sharply at the start of the week after Moderna announced that its phase 3 vaccine trials have yielded nearly 95% effectiveness.

This naturally encouraged hopes that an end to the current pandemic could soon be in sight, coming on the heels of the positive Pfizer vaccine announcement.

With two viable vaccines apparently nearing approval investors adopted a generally risk-positive outlook, buoying the South African Rand on Monday.

The latest signs of recovering growth in both China and Japan added to the optimistic market mood, putting further pressure on the GBP/ZAR exchange rate.

Persistent Lack of Brexit Breakthrough Keeps Pound Under Pressure

Demand for the Pound, on the other hand, proved limited as anxiety over Brexit started to pick up once again.

With UK-EU trade talks resuming ahead of Thursday’s draft deal deadline markets remained disappointed by the lack of any major breakthrough.

Key issues such as fishing appear to remain significant sticking points in discussions, encouraging speculation that no deal will be reached before the deadline.

This prospect naturally weighed on the Pound, given that the UK economy has already come under significant pressure as a result of the second national lockdown and Covid-19 disruption.

As long as the odds of a no-deal scenario continue to rise this could see the Pound shedding fresh ground against its rivals, leaving the GBP/ZAR exchange rate trapped on the back foot this week.

Without a breakthrough in discussions the Pound looks set to remain under pressure thanks to the risk of the two sides failing to reach a common ground before December.

Higher UK Inflation May Offer GBP/ZAR Exchange Rate Boost

However, the mood towards the Pound could improve on Wednesday if October’s UK consumer price index report impresses.

Forecasts point towards the headline inflation rate picking up from 0.5% to 0.6% on the year, signalling a recovery in domestic price pressures.

Rising inflation would give the Bank of England (BoE) greater cause for confidence in the months ahead, limiting the appeal of any move towards negative interest rates.

As long as the inflation rate picks up as forecast this could offer the GBP/ZAR exchange rate a rallying point, reducing market bets on a positive BoE interest rate cut.

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