GBP to ZAR Exchange Rate Kept Volatile by Coronavirus Jitters

February 20, 2020 – Written by Ben Hughes

While the Pound continued to tumble against many major currencies today, the British Pound to South African Rand (GBP/ZAR) exchange rate has been able to avoid significant losses. The South African Rand remains broadly unappealing overall due to concerns about South Africa’s economic outlook, even as the currency finds support in some market demand for riskier currencies today. Risk-sentiment is limited as well, and markets remain anxious that the coronavirus will have an impact on global growth.

Volatility in both the Pound and South African Rand has kept GBP/ZAR jittery since last week. GBP/ZAR edged higher from 19.42 to 19.45 last week, and this week has been unable to move too far from the week’s opening levels.

GBP/ZAR touched on a fortnight high of 19.64 earlier in the week, but the pair has been unable to hold those highs due to weakness in the Pound.

GBP Exchange Rates Plunge despite Strong UK Retail Results

The Pound experienced strong performance for most of the past week. It was supported by speculation that the upcoming UK budget could see a lot more government spending, which would further boost a speculated rebound in UK economic activity this year.

This week’s data has continued to support the narrative that Britain’s economic outlook is improving. UK job data, inflation data and even today’s retail sales results all beat forecasts.

However, despite today’s strong retail data the Pound saw another day of losses. Investors have been selling the Pound back from its high levels, even amid economic rebound hopes.

This has been due to multiple factors, including market anxiety over upcoming UK-EU Brexit negotiations. The EU has sustained a tough stance on negotiations, saying it would not give Britain special treatment in a post-Brexit financial markets deal.

On top of Brexit jitters, the Pound is also being driven lower by today’s broad strength in the US Dollar (USD). Investors are piling into the currency due to an optimistic Federal Reserve and safe haven demnand.

According to Colin Asher, Strategist at Mizuho:

‘In the very short term it’s all about the Dollar being the outperformer,’

Analysts at Commonwealth Bank of Australia said:

‘The better-than-expected pickup in UK retail sales volume failed to offset the drag to Sterling from heightened downside risk to global economic activity,’

ZAR Exchange Rates Fail to Sustain Gains as Risk-Aversion and Budget Jitters Persist

The South African Rand briefly saw stronger demand earlier today, due to a brief rise in demand for the currencies correlated to risk and trade-sentiment.

However, risk-sentiment quickly weakened again as the day progressed. Investors were disappointed with China’s attempts to restore confidence, and concerns persisted that the coronavirus could have a notable impact on global growth.

This ultimately left risk-correlated currencies like the South African Rand unappealing and kept it weak against the Pound today.

South Africa’s concerning domestic outlook also continues to keep heavy pressure on the Rand’s performance.

Yesterday’s South African inflation report, while better than forecast, did little to douse expectations of South African Reserve Bank (SARB) interest rate cuts this year.

Overall, the Rand’s performance is likely to remain jittery as markets anticipate South Africa’s upcoming budget speech. Some analysts, such as Mike van der Westhuizen from Citadel, believe that a strong enough budget performance could help to change South Africa’s economic fortunes:

‘Certainly, everyone expects this Budget to be poor, but [the government] might manage to demonstrate the will to cut expenditure and show just enough fiscal consolidation and, in that case, Moody’s might delay any decision until November.’

GBP/ZAR Exchange Rate Forecast: UK Data, South African Budget, Will Drive Outlooks

While concerns over Brexit the developing coronavirus crisis remain a significant influence for the Pound to South African Rand exchange rate, the pair’s core movement is still being driven by domestic outlooks as well.

Hopes for a UK economic rebound are keeping the Pound relatively strong overall. As a result, strong UK PMI projections tomorrow could boost hopes for a UK economic rebound and make the Pound more appealing.

The South African Rand is broadly unappealing overall due to market concerns about South Africa’s economic outlook.

As a result, the biggest event on the horizon for ZAR movement is South Africa’s budget presentation, later this month.

Of course, in the shorter term the risk-sensitive Rand will be driven by coronavirus developments. This leaves many factors driving the Pound to South African Rand exchange rate.

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TAGS: Pound Rand Forecasts