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GBP to ZAR Exchange Rate Knocked as Britain’s Outlook Seems Gloomy amid Brexit and Coronavirus

November 25, 2020 - Written by Frank Davies

Brexit hopes rising this week have not been enough to keep the British Pound to South African Rand (GBP/ZAR) exchange rate near its best levels. Instead, markets have been impressed by all the good news in recent weeks, which is making high yielding risk and emerging market currencies like the South African Rand particularly appealing. Looking ahead, the Pound could be more resilient if there are any optimistic Brexit developments any time soon.

Due to strength in both currencies, GBP/ZAR has seen volatility and mixed movement in recent weeks. Last week saw GBP/ZAR fluctuate but ultimately close the week near its opening levels, in the region of 20.47.

This week’s movement has been more bearish overall. After opening the week, GBP/ZAR briefly edged higher but has since been trending lower. At the time of writing, GBP/ZAR trends near the level of 20.35.

GBP/ZAR continues to trend closer to its lowest levels in months, unable to hold much in the way of gains.

GBP Exchange Rates Kept Under Pressure amid Britain’s Persisting Economic Woes

Investors piled into the Pound earlier in the week, on hopes that the UK and EU were getting closer and closer to reaching a Brexit deal.

However, no deal was announced this week as hoped, and recent comments from UK and EU officials have been more cautious about the chances of a deal.

Chief EU Negotiator Ursula von der Leyen said that the EU was still prepared for a no-deal outcome to Brexit. On top of this, UK Prime Minister Boris Johnson insisted today that the Brexit transition deal would not be extended.

He said:

‘Of course we're not going to extend the transition period but we want to make practical arrangements to help businesses in Northern Ireland,’

This weighed on hopes that negotiations could be extended into 2021 if a deal was close, and weighed on the Pound as well.

On top of this, Pound investors are concerned about Britain’s economic outlook.

Today saw UK Chancellor Rishi Sunak announce an update on the UK government’s spending and the impact of the coronavirus pandemic on Britain’s economy.

The update was about as gloomy as expected, and indicated that Britain’s economy was in for a long, rough period before it could full recover the damage of the past year.

This, combined with coronavirus fears, both weighed on the Pound’s appeal.

ZAR Exchange Rates Continue to Benefit from Improving Market Sentiment

The South African Rand is a currency often correlated with risk and emerging market sentiment. It strengthens in times markets are more optimistic about economic outlooks.

As a result, the Rand has seen stronger demand in recent weeks due to developments on major coronavirus vaccines. It has also been boosted by doused US political uncertainty.

This week’s news that the Trump administration would cooperate with the incoming Biden administration on the transition period made investors more confident about the US political outlook.

This made investors even more willing to take risks. According to a research note from Anchor Capital:

‘We are neutrally positioned on the US Dollar at the moment, and we will probably look to increase our exposure to the greenback should the rand move into the high-R14s against the Dollar’

The South African Rand may have been further boosted by today’s South African data.

South African inflation from October, as well as Q4 business confidence data, all came in well above expectations.

GBP/ZAR Exchange Rate Forecast: Brexit and Market Sentiment in Focus

The Pound to South African Rand exchange rate may struggle to advance again unless Brexit optimism rises again.

More optimistic comments from UK and EU officials, or signs of progress in talks, could make markets more optimistic about Brexit negotiations again.

On the other hand, the Pound could tumble lower if investors become more anxious about how Britain will weather the Brexit process and the coronavirus pandemic.

There is not much notable UK or South African data due for publication through the rest of the week though. This will leave the pair reacting to Brexit news, coronavirus news, and shifts in market sentiment.

The South African Rand’s movement will remain focused on market sentiment. If there is a sudden rise in coronavirus jitters, or US political uncertainty, investors may be less willing to take risks and the South African Rand would fall.

Still, if markets continue to become gradually more optimistic about economic recovery, the Pound to South African Rand exchange rate will struggle to strengthen.
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