December 7, 2020 - Written by John Cameron
STORY LINK Pound to South African Rand (GBP/ZAR) Exchange Rate Plummets as Brexit Talks Could ‘Go Both Ways’
GBP/ZAR Exchange Rate as No-Deal Fears Haunt UK Markets
The Pound to South African Rand (GBP/ZAR) exchange rate fell by -1% today, with the pairing currently fluctuating around R20.174.
Sterling suffered today as fears continue to grow that UK-EU trade talks could end in a possible no-deal scenario.
Despite both sides reaching a consensus on fishing rights, there is still no signs of a concession on a post-Brexit trade agreement, with EU laws remaining an obstacle.
Meanwhile, the EU’s Chief Negotiator, Michel Barnier, has warned that talks will not proceed beyond Wednesday this week, adding further pressure on Downing Street.
A senior EU diplomat added:
‘The outcome is still uncertain, it can still go both ways. The EU is ready to go the extra mile to agree on a fair, sustainable and balanced deal for citizens in the EU and UK. It is for the UK to choose between such a positive outcome or a no-deal outcome.’
As a result, demand for Sterling suffered this week as a no-deal Brexit would throw the British economy into heightened uncertainty in the new year.
South African Rand (ZAR) Rises as Covid-19 Vaccine Rollouts Boost Demand for Risky Assets
The South African Rand (ZAR) has continued to benefit from increased risk sentiment this week as several countries, including the UK, prepare to rollout the Covid-19 vaccine.
As a result, demand for riskier assets like ZAR has increased on growing hopes for the global economy’s recovery as more people are vaccinated against the coronavirus.
Nonetheless, South Africa’s Covid-19 wave threatens to further setback the nation’s economic recovery.
Annabel Bishop, chief economist at Investec, commented:
‘This imposition of differentiated lockdown restrictions is more sensible than raising restrictions for the whole of country, with the South African economy already very severely damaged from the harsher curbs to economic activity earlier in the year, and unemployment very high. Further restrictions are likely in SA’s hotspots as the festive season gets under way.’
Consequently, the outlook for ZAR remains largely uncertain as the SA economy has already been severely damaged by the nation’s outbreak of Covid-19 this year.
Instead, South African markets will be closely monitoring the global Covid-19 vaccine situation.
Any further signs of a rollout would prove ZAR-positive.
GBP/ZAR Outlook: South African GDP in Focus
South African Rand (ZAR) investors will be awaiting tomorrow’s release of the latest South African GDP data for the third quarter.
If this confirms forecasts and rises by 57.1%, then we could see the South African Rand continue to head higher against the Pound.
However, if US-China trade tensions continue to escalate, we could see demand for risky assets like ZAR come under some pressure.
Brexit will remain a key driver of the GBP/ZAR exchange rate this week.
As a result, we could see Sterling continue to fall if the UK and EU fail to find a consensus on a post-Brexit trade deal.
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TAGS: Pound Rand Forecasts South African Rand Forecasts