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GBP to ZAR Exchange Rate Struggles Near Weekly Lows despite Coronavirus Vaccine Hopes

January 18, 2021 - Written by John Cameron

Coronavirus concerns continue to dampen the British Pound to South African Rand (GBP/ZAR) exchange rate’s appeal this week, but Brexit jitters have returned to weigh on the Pound as well. Still, the South African Rand’s ability to capitalise on Pound weakness has been limited as well, as market risk-aversion on global coronavirus and political jitters are weighing on the risky emerging market-correlated Rand.

High volatility in both the Pound and South African Rand led to broadly mixed GBP/ZAR movement last week. After opening last week at the level of 20.75, GBP/ZAR bounced higher as the Pound advanced, and GBP/ZAR touched on a 2 month best of 21.09 in the middle of the week.

After touching that high though, the South African Rand saw its own rise in demand that ultimately pulled GBP/ZAR lower. By the end of the week, GBP/ZAR was trending in the region of 20.69.

GBP/ZAR has attempted recovery again this morning, but weakness in both the Pound and Rand has left the pair trending around the week’s opening levels. GBP/ZAR is not too far above last week’s lows of 20.59.

GBP Exchange Rates Pressured despite Vaccine Expectations

Despite hopes for Britain’s ramped up coronavirus vaccine scheme, the Pound remains unappealing today.

Last week saw the Pound attempt recovery as markets pared back Bank of England (BoE) interest rate cut bets. However, concerns that the coronavirus pandemic was not softening as much as hoped in Britain limited the British currency’s rebound.

While Britain’s coronavirus infection rate did show some signs of improvement over the weekend, concerns remained too high on Monday for the Pound to advance.

Markets were hesitant to take risks, so were hesitant to move much on Sterling. On top of this, there were fresh concerns about UK businesses struggling with the bureaucracy of the post-Brexit UK-EU trade deal.

Many fishermen have reportedly been struggling to export to the EU since the new trade deal was implemented at the beginning of the year. Some shellfish trucks have been protesting in London today.

According to Gary Hodgson, a Director at Venture Seafoods:

‘We strongly feel the system could potentially collapse,

Prime Minister Boris Johnson needs to be honest with us, with himself and with the British public about the problems for the industry,’

Still, investors were hesitant to sell the Pound too much either, amid optimism that Britain’s coronavirus vaccine situation would continue to improve. Analysts at ING said:

‘News that the UK’s vaccine rollout is advancing as planned continues to support the view that the UK could exit lockdown earlier than the continent.’

ZAR Exchange Rates Struggle as Markets Become Risk-Averse

When markets opened for trade this week, there was a risk-averse mood in markets.

As the coronavirus pandemic continued to hit many major economies in the winter period, investors became more anxious that the pandemic may do more economic damage in 2021 than previously hoped.

As the South African Rand is a currency often correlated to risk and emerging market sentiments, the currency has been unappealing amid the market’s risk-aversion this week so far.

On top of coronavirus jitters, investors are also hesitant to take too many risks ahead of the inauguration of US President-elect Joe Biden on Wednesday.

Still, there are some factors supporting the South African Rand and making it easier for the currency to avoid losses against the Pound today.

It was announced today that South Africa would get access to 9 million vaccines from Johnson and Johnson. It follows a long period of concern that South Africa had yet to secure any vaccines.

GBP/ZAR Exchange Rate Forecast: Risk Sentiment and SARB in Focus

Both the Pound and South African Rand are weak today, as both currencies are weakened by market risk-aversion.

However, if the global coronavirus situation shows signs of improvement, these currencies could be driven more by domestic news and data again as markets calm.

Some analysts predict the Pound could strengthen as Britain continues to ramp up vaccination programmes. If South Africa is able to secure vaccines this would boost the Rand as well.

If coronavirus and political jitters calm at all, data due in the coming sessions could take focus instead.

UK and South African inflation rate data will be published on Wednesday.

Thursday will be a key session for the South African Rand, with South Africa business confidence and retail sales stats due, as well as the South African Reserve Bank’s (SARB) January policy decision.

Friday will round off the week with UK retail and PMI stats, which could cause some late-week movement in the Pound to South African Rand exchange rate.
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