April 20, 2021 – Written by Tim Boyer
Uncertainty around the UK job market outlook, as well as lingering Rand demand, has been limiting the British Pound to South African Rand (GBP/ZAR) exchange rate’s advance potential. Still, the pair continues to attempt to advance this week as it rebounds from its worst levels seen last week. Key UK and South African inflation data could cause movement in the pair tomorrow, and UK data is likely to remain in focus through the end of the week.
Last week saw broadly dovish movement in GBP/ZAR. GBP/ZAR opened last week at the level of 20.01 and spent the week trending lower. The pair even touched on a low of 19.49, the worst GBP/ZAR level all year so far, before rebounding slightly and closing the week at the level of 19.80.
This week so far, GBP/ZAR has continued to attempt to rebound from last week’s lows. At the time of writing, GBP/ZAR has recovered some of last week’s losses and is trending in the region of 19.96.
Pound Sterling (GBP) Exchange Rates Supported by UK Recovery Hopes, despite Mixed Data
Investors continue to buy the Pound on hopes that Britain’s economic outlook is improving, with the UK expected to recover strongly from the coronavirus pandemic towards the end of the year, and data continuing to back that up.
Today saw the publication of Britain’s latest job market report. The data showed that Britain’s key unemployment rate was improving.
Overall, investors said that the Pound was more appealing amid this new evidence that Britain’s economic recovery was going relatively smoothly. According to Neil Wilson, Analyst at Markets.com:
‘Retail footfall and consumer spending is picking up rapidly.
Of course, all this data is massively skewed by interventions – furlough masks the true employment situation, arbitrary reopening dates skew spending to the first few days and weeks as the pent-up demand is let out.
Nevertheless, these are encouraging signs.’
According to James Smith, Developed Markets Analyst at ING, the unemployment rate could rise again later in the year:
‘Nevertheless, like most economists, we expect the unemployment rate to rise this year. A combination of the end of the furlough scheme, and to a lesser extent a potential increase in inbound UK migration later this year (partly reversing last year’s population fall) are both likely to trigger a temporary spike in the jobless rate to 6-6.5%.’
Though there were some less optimistic aspects of the report as well, which limited the Pound’s potential to claw back gains against the Rand.
The job market also showed that many people were stopping looking for jobs amid the coronavirus pandemic.
Other analysts have urged that the government continues to support the UK job market with fiscal policy towards the end of the pandemic to prevent a sudden worsening in the market.
South African Rand (ZAR) Exchange Rates Remain Appealing, Losses Limited
The South African Rand struck its best levels in months against some major rival currencies last week.
It had been capitalising on the combination of higher market sentiment, a weaker US Dollar (USD) and South African economic recovery hopes.
These factors continue to support the South African Rand this week so far. While some are selling the relatively risky and emerging market correlated currency from its best levels, its losses are slow due to the continued support the currency is seeing.
Lower US inflation expectations and lower bond yields in the US are also boosting demand for the South African Rand. According to Neels Heyneke, Currency Analyst at Nedbank:
‘As it is becoming clear that loan growth is not picking up in the U.S., the bond market is starting to question the reflation trade,
One of the major reasons the ZAR is outperforming the other EMs is higher real rates. The other major driver is rising commodity prices driving a higher current account.’
GBP/ZAR Exchange Rate Forecast: Inflation Reports Expected Tomorrow
Pound and South African Rand investors are now awaiting more key data, which could influence currency movement in the coming sessions.
Wednesday will see the publication of inflation rate data from both the UK and South Africa.
If there is an unexpected surge in UK inflation, it could boost Bank of England (BoE) speculation and the Pound.
On the other hand though, South African Rand demand could also see more support if tomorrow’s South African inflation stats beat forecasts.
Data will remain influential towards the end of the week as well. UK retail data will be published, as well as PMI projections for April.
If UK retail and PMI data improves, investors are likely to become even more optimistic about Britain’s recovery outlook.
The Pound to South African Rand exchange rate could also be influenced by shifts in coronavirus developments and global sentiment.
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TAGS: Pound Rand Forecasts