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GBP to ZAR Exchange Rate Holding Higher as Coronavirus Uncertainties Weigh on Risky Rand

January 26, 2021 - Written by John Cameron

Despite mixed demand for the Pound this week, the British Pound to South African Rand (GBP/ZAR) exchange rate has been able to sustain gains due to weakness in the Rand. Investors are a little more hesitant to take risks this week, and this combined with South Africa’s concerning coronavirus situation is leading to Rand losses.

Since opening this week at the level of 20.71, GBP/ZAR has been trending with an upside bias. At the time of writing, GBPZAR has seemingly recovered most of its recent losses and trends in the region of 20.85.

GBP/ZAR movement has been notably more bullish in comparison to last week, when the pair opened the week at the level of 20.69 and spent most of the week tumbling before its late-week recovery.

Still, GBP/ZAR has been unable to recover to the highs seen near the beginning of the month, when Rand weakness saw the pair touch on a multi month high of 21.08.

GBP Exchange Rates Struggle for Ground despite Stronger than Forecast UK Data

The Pound’s movement has been mixed this week so far. Against many major currency rivals, the Pound has been struggling to advance or falling.

This is due to concerns about the coronavirus pandemic and its impact on Britain’s economic outlook. Britain’s infection rate is showing minimal signs of softening despite the third coronavirus lockdown.

However, the Pound has been able to advance against a comparatively weak South African Rand.

Today’s UK job market report beat expectations in many key prints. While this had little impact on the Pound’s overall movement, it likely helped Sterling to sustain some gains against the weaker Rand.

Britain’s key unemployment rate was a little better than the forecast 5.1%, coming in at 5.0% instead. The employment change figure was not as bad as feared, and wages actually rose more than expected.

Analysts also had mixed responses to the data. Most appeared to be concerned about the potential for more job losses when the government’s current job retention schemes end a few months from now.

According to Frances O’Grady, General Secretary at TUC:

‘The more people we keep in work, the faster we can recover. But with the job retention scheme set to end in April, millions of people’s jobs hang in the balance.

When the government planned to withdraw support last autumn, despite restrictions still being in place, unemployment surged. We can’t let that happen again.

It’s time to end the uncertainty and anxiety. The chancellor must urgently extend furlough support to the end of the year to keep jobs safe.’

ZAR Exchange Rates Unappealing as Coronavirus Uncertainty Hits Markets This Week

The South African Rand is a currency often correlated to risk and emerging market sentiment. It often strengthens in times of market confidence and weakens in times of uncertainties.

This week, investors have been hesitant to take more risks as the global coronavirus situation has worsened. Many major economies are being hit more by the pandemic in early 2021 than hoped.

As a result, the Rand is being weakened by risk-aversion this week.

According to Antje Praefcke, FX and EM Analyst at Commerzbank:

‘Vaccination programmes are making much slower progress in a number of countries than had previously been planned. Moreover, it is uncertain to what extent vaccinations are also effective against new mutations of the virus,

The market’s initial reaction seemed to return to the old pattern in view of this new wave of uncertainties: risk-off and into USD despite falling US yields.’

On top of this, the Rand is unappealing due to concerns over South Africa’s high infection and death rates, as well as concerns that South Africa is struggling to secure its own vaccination programme.

GBP/ZAR Exchange Rate Forecast: Coronavirus Developments in Focus

Amid a lack of major UK or South African data due for most of the week, the Pound to South African Rand exchange rate is more likely to be driven by shifts in market trade and risk sentiment, as well as coronavirus news.

Britain’s coronavirus outlook continues to cloud over the Pound’s movement in recent sessions. Unless UK infection rates show more solid signs of softening, investors may have little reason to buy the Pound again.

In fact, if the UK coronavirus lockdown is extended or the situation worsens in other ways, the Pound may struggle to hold its current gains against the Rand.

The Rand remains weak as well however. Unless there is an improvement in the overall global outlook, the Rand could see continued weakness.

Optimistic developments in vaccination shipments or South Africa’s vaccination schemes are the biggest chances the Rand has of a more sustained recovery.

There is some South African data due at the end of the week. Stronger than expected South African trade balance data on Friday could support the Rand and weigh on the Pound to South African Rand exchange rate.
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