GBP to ZAR Exchange Rate Trends Higher as Rand Demand Dented

December 4, 2020 - Written by David Woodsmith

STORY LINK GBP to ZAR Exchange Rate Trends Higher as Rand Demand Dented

Despite market risk-sentiment on hopes for a global recover from the coronavirus pandemic next year, the British Pound to South African Rand (GBP/ZAR) exchange rate has been trending with an upside bias over the past week. As the risk-rally loses steam, concerns about South Africa’s economic outlook are putting more pressure on the South African Rand. However, Brexit jitters are weighing on the Pound, limiting its ability to register gains against a weaker Rand.

After opening the week at the level of 20.32, GBP/ZAR spent the week trending with an upside bias. GBP/ZAR jumped at the beginning of the week and touched on a high of 20.65 - the best level for the pair in almost a month since early November.

While GBP/ZAR was unable to hold those highs, the pair continued to trend with an upside bias right through the week. At the time of writing on Friday, GBP/ZAR trended in the region of 20.39 - still modestly above the week’s opening levels.

Still, GBP/ZAR continues to trend relatively low compared to the levels seen for most of 2020.

GBP Exchange Rates Struggle to Capitalise on Rival Weakness amid Brexit Uncertainty

The Pound’s appeal has been highly mixed over the past week, as speculation over the direction of UK-EU Brexit negotiations becomes more and more uncertain.

Speculation that the UK and EU are mere days away from reaching a Brexit deal has been keeping the Pound buoyed, helping the currency to avoid bigger losses.

On the other hand though, bets on a deal soon are sliding as officials indicate that major disagreements on issues like fisheries, foreign aid and an even playing field still remain.

Markets expect a volatile few weeks for the Pound as the fate of the Brexit process will become clearer at the end of 2020. According to Marshall Gittler, Head of Investment Research at BDSwiss Group:

‘It’s conceivable that they don’t come to any agreement before the transition period ends on Jan. 1 and continue negotiating some sort of trade deal even after the UK has crashed out with no deal,

I expect Sterling to remain volatile indefinitely’

Strong UK data has not been enough to help markets remain optimistic as the Brexit process takes increasingly large focus for Sterling movement.

Today’s UK construction PMI report printed better than expected. However, it still contained concerning data about supply chains and employment. According to Tim Moore, Economics Director at IHS Markit:

‘Supply chain challenges remain on the horizon, as signalled by another sharp lengthening of lead times for construction products and materials’

ZAR Exchange Rates Dented by Economic Outlook despite Global Recovery Hopes

The South African Rand has been rallying in recent weeks, but that rally has come to an end for the time being.

As a currency correlated to risk and emerging market sentiment, the South African Rand has benefitted strongly from coronavirus vaccine news and hopes of a global economic recovery from the pandemic next year.

However, as the risk rally runs out of steam, investors are becoming more concerned about South Africa’s own economic outlook again. This is weighing on the South African Rand this week and keeping it lower against the Pound.

South Africa’s government tightened restrictions on the Eastern Cape province where coronavirus infections are surging. South Africa President Cyril Ramaphosa said:

‘We know that a second wave is possible but we know too that it can be prevented ... We are in the fight of our lives,’

Concerns around a dispute over South Africa wage increases are weighing on the Rand this week as well.

GBP/ZAR Exchange Rate Forecast: Brexit Surprises Can Still Cause Huge Movement

The Pound to South African Rand exchange rate could keep climbing in the coming week, but it could plummet instead. It all depends on how the Brexit process continues to unfold.

If there are optimistic developments in UK-EU Brexit negotiations, the Pound outlook would rise. The Pound would be able to more easily take advantage of South African Rand weakness and GBP/ZAR would advance.

However, if negotiations are seen as going poorly or there are no developments, no-deal Brexit fears could rise. In the event of a no-deal Brexit at the end of the month, the Pound would plummet and even weak rivals would advance against it.

Brexit is especially likely to be the focus next week, as the week’s UK economic calendar will be a little quieter too. UK growth rate news is still likely to be overshadowed by Brexit developments.

As for the South African Rand, it will be driven more by shifts in risk sentiment. If the risk rally resumes, the Rand may be more likely to advance again.

Upcoming South African data could be influential as well. Tuesday’s South African growth data and Wednesday’s inflation and retail stats could cause Pound to South African Rand exchange rate movement if they surprise investors.

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TAGS: Pound Rand Forecasts