Investors sold the Pound en masse when markets opened today, but despite this the British Pound to South African Rand (GBP/ZAR) exchange rate has been able to avoid significant losses as the South African Rand continues to see broad weakness of its own. Pound investors are becoming more concerned about rising Bank of England’s (BoE) interest rate cut bets, as well as the next phase of Brexit negotiations, which are heavily weighing on the British currency.
After opening last week at the level of 19.44, GBP/ZAR spent most of the week climbing and closed the week nearer the level of 20.07.
When markets opened this morning, lingering Rand weakness briefly shot GBP/ZAR up to a high of 20.31 – the highest GBP/ZAR level since the 2016 Brexit vote.
Since then though, GBP/ZAR has been sliding again as Pound investors react to Bank of England speculation. GBP/ZAR briefly touched on a low of 19.75 earlier, but has generally held above the key level of 20.00 and currently trends in the region of 20.01.
GBP Exchange Rates Plunge as Bank of England and Brexit Concerns Rise
The biggest movement on currency markets today has likely been the Pound’s significant losses in reaction to a rise in Bank of England (BoE) interest rate cut bets.
The Bank of England signalled this morning that it was prepared to take the steps necessary in order to help protect Britain’s economy from the damage of the coronavirus Covid-19.
In reaction to the bank’s comments, BoE interest rate cut bets surged and the Pound plummeted. BoE interest rate cut bets only soared higher due to recent market concerns that Britain wouldn’t see much of an economic rebound after all.
On top of BoE interest rate cut bets though, the Pound was also hit lower today by market anxiety around the next phase of UK-EU Brexit negotiations.
The first round of Brexit transition period negotiations begun today and will last through Thursday. The already sensitive Pound is especially sensitive to the possibility of a hard Brexit becoming even more likely.
According to David Madden, Market Analyst at CMC Markets:
‘It’s essentially the same (Brexit) story that’s been going on, but a new chapter,
All you need is one negative comment from a government official. The fact that that’s a possibility has dissuaded a large chunk of sterling buyers.’
ZAR Exchange Rates Remain Unappealing amid South Africa’s Gloomy Economic Outlook
After digesting last week’s anticipated South African budget presentation, many investors speculated that the budget may not have been enough to help South Africa’s gloomy economic outlook.
Ultimately, the South African Rand spent last week plummeting across the board, even seeing significant losses against a broadly weak Pound as investors showed concern with South Africa’s economic outlook.
On top of markets showing a generally bearish reaction to the budget presentation, South African data continues to disappoint investors as well.
This morning’s South African February manufacturing PMI from ABSA fell short of expectations, contracting further from 45.2 to 44.3.
Not only did the data fall short of expectations, but this marked the worst figure for the print in over a decade.
Combined, the Treasury’s lower South Africa growth forecast and this weak data both make the perceived chance of Moody’s cutting South Africa’s final investment grade credit rating more likely.
Despite this though, the South African Rand may have held its ground a little better amid speculation that Moody’s may not cut the credit rating.
According to Walter de Wet, Economist at Nedbank, the budget likely did enough to hold off a credit rate cut for now. He said:
‘That said, there remains a one-in-three chance of a downgrade on South Africa in the future (possibly in November) and as such, the budget likely only managed to buy time should there be no progress on cutting the government’s wage bill,’
GBP/ZAR Exchange Rate Forecast: Brexit and South African Growth Rate Focus
While the spread of the coronavirus remains a significant concern for both Pound and South African Rand investors, other developments may be even more influential for GBP/ZAR in the coming sessions.
The first round of new UK-EU Brexit negotiations could cause significant Pound movement if there are any surprising developments or comments in the coming sessions.
For example, if UK officials are more optimistic on talks than expected, the Pound could see a strong rebound from its recent poor performance. Hard Brexit threats would have the opposite effect.
As for the South African Rand, it could find some more solid support aside from speculation if tomorrow’s South African growth rate data beats forecasts.
South Africa’s Q4 growth rate data is expected to show that growth contracted year-on-year.
If it comes in lower than expected, bets of a Moody’s credit rating cut could rise and the Pound to South African Rand exchange rate could be in for fresh gains.
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TAGS: Pound Rand Forecasts