Investors continued to buy the British Pound to South African Rand (GBP/ZAR) exchange rate through the end of the week. The Pound continued to benefit from the market’s slightly stronger demand for riskier assets, but the Rand failed to capitalise at all. This is due to signs that South Africa is struggling with the coronavirus outbreak, combined with general concern over the health of South Africa’s economic outlook.
After opening this week at the level of 20.51, GBP/ZAR saw mixed movement for much of the week before surging higher since yesterday.
GBP/ZAR gained around a Rand to touch on this morning’s fortnight high of 21.51. However, a lack of solid strength in the Pound has limited its gains and GBP/ZAR is trending closer to the level of 21.41 at the time of writing.
GBP/ZAR is overall trending near its best levels since early March, as the Rand’s appeal unravels and the Pound benefits more from market risk-sentiment.
GBP Exchange Rates Benefit from Market Sentiment despite Britain’s Mixed Outlook
Demand for the Pound has improved over the past week, but this is largely due to weakness in the US Dollar (USD) and the market’s improved global outlook.
As the Federal Reserve and US Congress announced huge US stimulus packages, market sentiment has finally begun to calm from weeks of huge coronavirus panic.
The US Dollar’s appeal as a funding currency and a safe haven currency finally softened somewhat, allowing other major currencies to claw back some of the huge losses seen in recent weeks. The Pound has been among these, gaining strongly thanks to US Dollar losses.
According to Derek Halpenny, Head of Research at MUFG:
‘We are now seeing the predictable reversal of G10 FX performance on the back of the broad depreciation of the Dollar in response to the liquidity measures by the Federal Reserve and the government measures on top,
Assuming these more favourable financial market conditions can now last for a period … Sterling could be rewarded further by the economic policies of the government to target more specifically the protection of employment.’
The Pound’s domestic appeal has been mixed however. The latest fiscal stimulus from the UK government had little notable impact on the Pound’s appeal.
On top of this, news that UK Prime Minister Boris Johnson had contracted the coronavirus further dampened market appetite for the Pound today. This made it harder for GBP/ZAR to hold its weekly highs.
ZAR Exchange Rates Tumble as South Africa Struggles with Coronavirus Lockdown
The South African Rand has been unable to benefit notably from the US Dollar’s (USD) losses this week. While the Rand is often correlated to market risk-sentiment which has been steadying, the Rand’s weakness on South Africa’s domestic concerns remains too broad.
South Africa’s coronavirus pandemic situation has considerably intensified over the past week.
The South African Reserve Bank (SARB) introduced fresh quantitative easing (QE) stimulus policy, but there are dominant concerns that South Africa’s economy won’t weather the pandemic very well.
South Africa’s government begun a three week lockdown period this week and the first coronavirus deaths in the nation have just been confirmed. On top of this, the latest credit rating decision on South Africa’s economy from Moody’s is expected soon.
Charles Robertson, Global Chief Economist at Renaissance Capital, says:
‘It’s extremely difficult to see what South Africa can do. The structural problems that have held the country back are not … going to be easily fixed now,’
GBP/ZAR Exchange Rate Forecast: Rand’s Weakness Could Intensify
The South African Rand has been tumbling on concerns over how South Africa’s economy will weather the coronavirus pandemic.
As a result, if the nation’s coronavirus outlook worsens, or if Moody’s downgrades South Africa’s credit rating, the Rand could be in for further weakness.
South Africa has been holding on to its last positive credit rating from Moody’s for some time now, but there is concern that the coronavirus pandemic could push Moody’s to downgrade South Africa to negative.
According to Bianca Botes, Treasury Partner at Peregrine Treasury Solutions:
‘It’s D-Day for South Africa, as not only is it the first day of lockdown, but Moody’s is also scheduled to announce the result of its highly anticipated credit rating review that could see South Africa be downgraded to junk status,’
As for the Pound, it could see slightly stronger demand if market sentiment continues to calm. The Pound to South African Rand exchange rate has a decent chance of holding this week’s advances unless the UK coronavirus situation worsens.
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TAGS: Pound Rand Forecasts