March 9, 2021 – Written by David Woodsmith
Despite the Pound’s continued broad appeal, the British Pound to South African Rand (GBP/ZAR) exchange rate slipped back from its best levels in months today amid a rebound in demand for the South African Rand. Strength in the Rand may be limited, but if South African data continues to impress investors, then the pair is likely to struggle to return to multi month highs again.
GBP/ZAR has been trending with a generally upside bias in recent weeks, sustaining pretty solid gains due to the Pound’s broad strength. Last week saw GBP/ZAR climb from the level of 21.05 to 21.25, and the pair is again trending with an upside bias this week.
Overnight, GBP/ZAR touched on a high of 21.50 – the best level for the pair in five months since October 2020.
However, this morning GBP/ZAR has tumbled again as the South African Rand sees a sharp rebound on today’s data and market sentiment. At the time of writing, GBP/ZAR is trending closely to the week’s opening levels again.
Pound Sterling (GBP) Exchange Rates Continue to Benefit from the Market’s UK Outlooks
Investors have continued to find the Pound broadly appealing in recent weeks, amid rising expectations that Britain’s economy will be one of the first major economies to recover from the coronavirus pandemic.
This has been the primary cause of the Pound’s persistent bullishness among major currencies recently.
This week has brought more optimism and good news to the UK outlook as well, with the UK economy starting to slowly reopen from its latest lockdown. UK schools reopened this week.
Comments from economists have also supported the Pound this week. Bank of England (BoE) Governor Andrew Bailey expressed cautious optimism about Britain’s economic recovery chances and indicated the bank would upgrade its UK job market outlook.
On top of that, the Organisation for Economic Co-operation and Development (OECD) published its latest economic forecasts and expressed particular optimism about Britain’s outlook, due to the nation’s bigger progress in mass vaccinations.
The perceived divergence in vaccine rollouts is among the biggest reasons for the higher optimism about Britain’s momentum and outlook. According to the OECD’s report:
‘A more gradual upturn appears likely in the major European economies, reflecting continued containment measures in the early part of 2021 and more limited fiscal support, although the acceleration of vaccine deployment should help momentum to build, particularly in the United Kingdom.’
South African Rand (ZAR) Exchange Rates Rebound as South African Growth Impresses
The South African Rand experienced a rebound in demand today, as a surprisingly strong South African growth report overshadowed the market’s slightly more cautious mood.
South Africa’s Q4 growth rate results came in notably above expectations today. Quarterly growth came in at 6.3% rather than the expected 5.0%, and the yearly rate improved from –6.2% to –4.1%, more than expected.
This news helped the South African Rand to rebound and climb today, but uncertainty still persists over the strength over South Africa’s economy overall.
According to Stats SA, the data also shows that South Africa’s productivity has been weakening over the past decade or so:
‘Adjusting for inflation, Stats SA’s data shows that GDP per capita peaked in 2014 in South Africa and has since been declining.
This means that economic growth has been struggling to keep up with population growth, as GDP per capita decreased in 2020 to a level last seen in 2005’
On top of this uncertainty, markets have been less willing to take risks this week which is also dampening the appeal of the relatively risk-correlated South African Rand.
GBP/ZAR Exchange Rate Forecast: More Strong South African Data Could Keep Pair Pressured
The Pound to South African Rand exchange rate is sliding today, but unless the Rand remains appealing the Pound could resume its rally again.
Upcoming South African data, including business confidence due tomorrow and production data due on Thursday, could support the Rand’s appeal if they impress investors.
Stronger than expected South African production stats would boost hopes that South Africa’s economy has been resilient to the pandemic this year so far.
With coronavirus vaccinations rolling out in South Africa, this could be just what the Rand needs to mount a stronger advance.
On the other hand though, if the South African data disappoints and markets become more averse to taking risks, GBP/ZAR could close in on its best levels in months again.
Friday’s UK production and growth rate results could also be closely watched by Pound to South African Rand exchange rate investors.
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TAGS: Pound Rand Forecasts