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Pound to Rand Forecast to Struggle Despite Weaker Market Sentiment

April 13, 2021 - Written by James Fuller

Despite a lack of particularly strong South African data lately, the British Pound to South African Rand (GBP/ZAR) exchange rate has been struggling to recover from its worst levels since last week. Sterling remains broadly appealing, but was only able to advance more easily after today’s US data weakened market sentiment and made the South African Rand less appealing.

Last week saw broad losses for the Pound, and the South African Rand capitalised to knock GBP/ZAR to its worst levels since the beginning of the year. GBP/ZAR opened the week at the level of 20.27 before slumping and touching on that multi-month low of 19.90.

GBP/ZAR ultimately closed last week at the level of 20.01.

Since markets opened this week, movement has been limited as the South African Rand attempts to hold its impressive gains. Still, fresh weakness in market sentiment today did weigh on ZAR a little, and at the time of writing GBP/ZAR is attempting to climb and is trending in the region of 20.09.

Pound Sterling (GBP) Exchange Rates Climb as UK Growth Beats Forecasts

The Pound has been broadly appealing in recent weeks, despite its losses against the South African Rand.

Markets expect that Britain will be one of the first major economies to recover from the coronavirus pandemic. This has been among the primary causes of broad Pound strength lately.

This expectation continues to support the Pound this week, as the latest UK data beats forecasts and points towards a strong recovery for Britain’s economy in the second half of 2021.

Britain’s February growth rate report fell slightly short month on month, but the yearly and 3-month figures were notably better than expected.

The data overall indicated that Britain’s economy was performing more resiliently through the third coronavirus lockdown than expected, and this kept the Pound sturdy today.

It made it easier for the Pound to strengthen against the South African Rand when Rand demand softened in the afternoon.

Still, Sterling’s strength was limited slightly towards the end of the day, as news that Bank of England (BoE) Chief Economist Andy Haldane would leave the bank in summer surprised markets.

The sudden announcement was unexpected, as Haldane had been appointed a new 3 year term last year. The news caused some uncertainty about Britain’s central bank, dampening Sterling sentiment just slightly.

South African Rand (ZAR) Exchange Rates Weaker as US Inflation Dents Market Sentiment

Investors bought the South African Rand en masse in recent weeks. The South African currency capitalised on a rise in market sentiment, amid continued dovishness from the Federal Reserve.

As Fed rate hike bets fell, investors were more willing to take risks. This boosted demand for the risk and emerging market correlated South African Rand, causing it to strike highs against major rivals including the strong Pound.

However, the possibility of tighter monetary policy from the Federal Reserve persists and continues to be speculated in markets, despite dovish Fed comments.

According to Economists at ETM Analytics:

‘Any suggestions of rising inflationary pressures in today's U.S. CPI print for March could potentially reignite the rise in UST yields that caused havoc in global markets through Q1,’

It’s because of this that this afternoon’s US inflation rate report, which did actually beat forecasts, led to some fresh weakness in the South African Rand and made it easier for GBP/ZAR to attempt recovery.

Pound Rand Forecast

With all of this week’s notable UK data being published already, the Pound to South African Rand exchange rate could be driven more by South African Rand movement in the coming sessions.

More key South African data is due soon. With the Rand’s recent strength due largely to global sentiment, some stronger than expected South African data could boost market confidence in South Africa’s own economic outlook.

Tomorrow will see the publication of South Africa’s February retail sales results, with February building permits data due on Thursday.

Continued market reaction to US inflation data could also influence market sentiment and the South African Rand in the coming sessions.

As for the Pound, it will likely be influenced by developments regarding Bank of England (BoE) Chief Economist Andy Haldane as markets await next week’s UK data.

Domestic and global developments in the coronavirus pandemic will of course continue to influence the Pound to South African Rand exchange rate as well.
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