Revived Brexit Uncertainty Fails to Knock Pound to South African Rand (GBP/ZAR) Exchange Rate

Pound to South African Rand Exchange Rate Avoiding Losses amid Rand Weakness

The Pound (GBP) has seen weaker performance this week so far, but the Pound Sterling to South African Rand (GBP/ZAR) exchange rate continues to trend near its best levels today. Risk-aversion is keeping the South African Rand (ZAR) weak.

Rebound attempts in both currencies left GBP/ZAR jittery last week. GBP/ZAR ultimately didn’t move much, closing the week near where it started in the interbank region of 18.82.

This week so far though, GBP/ZAR has already seen a considerable jump higher. GBP/ZAR touched on a one-month-best of 19.12 yesterday, and trends close below that level in the region of 19.05 at the time of writing.

Sterling is falling today, and GBP/ZAR is only avoiding losses due to broad weakness in the Rand. Concerns about a spreading coronavirus and how it could impact global growth, combined with South African economic concerns, weigh heavily on the Rand outlook.

Pound (GBP) Exchange Rates Unappealing as Brexit Returns to Focus

Last week’s Pound (GBP) rally has run out of steam, and may have actually driven the currency too high. Investors have been selling the British currency from its best levels this week so far.

Sterling has been tumbling due to various factors, including persisting speculation that the Bank of England (BoE) could still cut UK interest rates this week. Recent UK data has been too mixed to completely offset recent rate cut bets.

On top of BoE speculation though, Brexit jitters are returning.

Brexit took a slight backseat in the Pound outlook for much of the past month. However, with Brexit due to formally take place on Friday, markets are once again becoming anxious about the future relationship between the UK and EU.

According to Jeremy Stretch, Head of G10 Currency Strategy at CIBC Capital Markets:

‘It’s been a case that Brexit issues have been off the agenda for a while, but there are now some signs of friction between the two sides as negotiations are gearing up, and that might be a source of consternation,’

South African Rand (ZAR) Exchange Rates Throttled by Coronavirus Fears

The South African Rand (ZAR) briefly enjoyed a rebound in demand last week, after a long period of poor performance. However, this rebound was limited.

South Africa’s domestic economic outlook remains weak, is offering no support to the Rand. Meanwhile, global economic uncertainties and jitters are rising.

A coronavirus outbreak in China has seen increased spread since last week, and China continues to lock down cities to prevent further spreading. As a result, markets are becoming more anxious about potential economic impact.

The South African Rand is correlated to global risk and trade sentiment, as well as Emerging Market sentiment.

Analysts believe that the Rand is particularly unappealing this week, due to a mix of risk-aversion and South Africa’s poor outlook. According to Annabel Bishop, Chief Economist at Investec:

‘EM currencies are weaker in general, but the Rand has been most negatively affected as concerns over SA’s debt projections raise fears of a Moody’s downgrade,’

Pound to South African Rand (GBP/ZAR) Exchange Rate Support Depends on Bank of England (BoE) Outlook

The Pound to South African Rand (GBP/ZAR) exchange rate remains near highs for now. The Pound (GBP) could be in for more influential losses later in the week though, if the Bank of England (BoE) shows fresh signs of dovishness.

No notable data will be published tomorrow. This leaves GBP/ZAR reacting to global risk sentiment until Thursday’s session.

South African PPI data could cause some Rand movement on Thursday morning. Overall though the biggest focus of the day will be the Bank of England’s January policy decision.

If the bank cuts UK rates or ramps up its dovishness due to economic concerns, the Pound could see fresh losses. If this combines with cooler market risk-sentiment, GBP/ZAR could shed much of its recent gains.

On the other hand, if the BoE becomes more hawkish on Britain’s economy or market coronavirus fears worsen, the Pound to South African Rand (GBP/ZAR) exchange rate could continue to rally.

Josh Jeffery

Contact Josh Jeffery