South African Rand (ZAR) Rises on Easing Covid-19 Fears
The Pound South African Rand (GBP/ZAR) exchange rate held steady today, with the pairing currently trading around R20.078 after the South African currency benefited from rising bets on the US Federal Reserve cutting its interest rates.
This resulted in a global sell-off of the ‘Greenback’ due to growing fears over the economic impact of the coronavirus (Covid-19). However, investors have begun to return to the South African Rand (ZAD), which is benefiting from easing concerns over China’s Covid-19 outbreak.
Traders at ETM Analytics commented:
‘The modest improvement in global risk appetite as we head into the new week is supporting the [South African Rand] at the margin … The market is ripe for a correction and the improvement in risk appetite may well prove to be the catalyst for profit-taking from stubborn long [US Dollar] positions.’
With China being one of South Africa’s largest trading partners, however, the South African Rand’s marginal strength is likely to be challenged in the near-term.
Pound (GBP) Sinks on Rising BoE Rate Cut Odds
The Pound (GBP) fell against many of its peers today after the Bank of England (BoE) showed a notably dovish response to the global coronavirus crisis, stating that it would do everything in its powers to ‘protect financial and monetary stability [within the UK]’.
The BoE’s spokesperson also commented:
‘The bank continues to monitor developments and is assessing its potential impacts on the global and U.K. economies and financial systems.’
Sterling also failed to benefit from today’s publication of the UK’s Markit Manufacturing PMI for February, which dipped below forecasts from 51.9 to 51.7.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, was downbeat in his analysis, commenting:
‘With no clear end to the disruption in sight, the gains made by manufacturing at the beginning of the year could soon be lost. A vortex of poor UK weather conditions, underlying remaining Brexit fears and now the Coronavirus will strip the sector of any significant wins if supply chains continue to disintegrate in the coming months.’
Increasing Rate Cut Odds Could Weaken the GBP/ZAR Exchange Rate
South African Rand (ZAR) investors will be looking ahead to tomorrow’s release of South African growth report for the fourth quarter. However, as this is expected to fall by -0.1% we could see the ZAR/GBP exchange rate begin to slip.
Sterling traders will be awaiting tomorrow’s release of the UK Markit Construction PMI for February. Any signs of the British construction sector suffering last month could increase the odds of a BoE rate cut and weaken the GBP/ZAR exchange rate.