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GBP/ZAR Forecast: Pound to South African Rand Exchange Rate Kept Under Pressure by Fed Expectations

March 17, 2021 - Written by David Woodsmith

Since opening this week, the British Pound to South African Rand (GBP/ZAR) exchange rate has been trending with a downside bias. The South African Rand is attempting to sustain its recent gains as markets await central bank news, while the Pound’s recent rally has run out of steam for now. The pair has the potential to climb in the coming days if central bank news surprises investors, but otherwise the South African Rand could remain appealing if markets head for more risk-on movement.

Last week saw a strong rebound in the South African Rand. GBP/ZAR opened last week at the level of 21.25 and briefly jumped to a high of 21.48 - the best level for the pair since October 2020.

After touching those highs though, the Rand capitalised on a recoiling Pound and GBP/ZAR plummeted, losing around half a Rand of strength. GBP/ZAR ultimately closed last week at the level of 20.81.

This week so far, GBP/ZAR continues to trend with a downside bias. GBP/ZAR touched on a March low of 20.48 yesterday and is still below the week’s opening levels in the region of 20.74 at the time of writing.

Pound Sterling (GBP) Exchange Rates Steady Ahead of Bank of England (BoE)

The Pound’s appeal has softened slightly this week. The British currency’s recently long rally has slowed after weeks of surging performance, and some new uncertainties in Britain’s outlook are further limiting Sterling’s strength.

Markets remain optimistic that the Bank of England (BoE) is also becoming more optimistic on Britain’s economic outlook. This is helping the Pound to avoid losses.

However, normal uncertainty ahead of the BoE decision, as well as the latest Brexit jitters, are preventing the Pound from making further gains.

Concerns that the EU could take legal action against the UK for issues with the Northern Ireland protocol are weighing on the Pound.

Other concerns about the safety of AstraZeneca’s coronavirus vaccine have largely softened, but the Pound’s appeal is still limited. According to Analysts at ING:

‘UK authorities have dismissed safety concerns on the AstraZeneca vaccine, which should leave the pound less vulnerable than other European currencies to the suspension story,

A wait-and-see approach may prevail in GBP price action as we head to the Bank of England meeting tomorrow.’

South African Rand (ZAR) Exchange Rates Benefit from Market Sentiment Ahead of Fed Decision

The South African Rand is a currency often correlated with risk and emerging market sentiment. As a result, it has benefitted from much of the risk-on mood lately as global markets become more optimistic about potential recovery from the coronavirus pandemic.

This was part of the South African Rand’s rebound last week. The Rand had also benefitted from a brief recoil in demand for the US Dollar.

Overall, while South Africa’s vaccination and recovery outlook is gradually improving, the South African Rand continues to be driven largely by external factors like risk-sentiment and rival strength.

According to Analysts at NKC African Economics:

‘With external factors remaining the key drivers of Rand movements, we expect that the (Federal Reserve) will reaffirm its extremely dovish stance, despite large upward revisions to its GDP growth and inflation forecasts for this year’

The Rand continued to hold gains against the Pound today, despite South Africa’s latest retail sales results coming in worst than expected.

GBP/ZAR Exchange Rate Forecast: Central Bank News and South African Building Permits Ahead

Central bank news is likely to dominate forex movement for much of the coming session.

This evening will see the Federal Reserve hold its March policy decision. Speculation of a more hawkish Federal Reserve could be offset by continued caution from the bank, which may boost risk-on movement and the South African Rand.

Tomorrow will follow with the Bank of England’s (BoE) own March policy decision. It will be the biggest event of the week for Pound investors.

If the bank remains optimistic about Britain’s potential for recovery, the Pound could see stronger demand towards the end of the week.

Markets will also watch tomorrow’s South African building permits data. Strong data could mean better support for the South African Rand.

Friday’s session will round off the week with UK consumer confidence and public borrowing results.

Of course, any surprise developments in the coronavirus pandemic may also influence the Pound to South African Rand (GBP/ZAR) exchange rate.
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