Pound to South African Rand Exchange Rate Holding High as Credit Ratings Keep Rand Gloomy
The South African Rand (ZAR) has been in a downtrodden mood this week, making it easier for the Pound Sterling to South African Rand (GBP/ZAR) exchange rate to hold near its best levels. This is despite today’s UK data being highly concerning about the UK outlook.
Following last week’s impressive Rand and a half surge, GBP/ZAR continues to trend higher.
The GBP/ZAR interbank level touched a high of 22.44 on Monday. This was the best level for the pair since the 2016 Brexit vote.
While GBP/ZAR has slipped slightly from those highs since, the pair is still trending fairly close to those impressive highs. GBP/ZAR is trending in the interbank region of 22.22 at the time of writing on Wednesday.
The South African Rand remains broadly unappealing since Moody’s cut South Africa’s credit rating to junk status in the past week. It was South Africa’s final investment-grade rating and the news has had a big negative impact on both the South Africa and Rand outlooks.
Pound (GBP) Exchange Rates Avoiding Major Losses despite Dire UK PMIs
Due to last week’s stimulus action from the Federal Reserve and US government, market liquidity has improved. This led to a strong rebound in the Pound (GBP) after sharp March losses.
The improved liquidity has kept the Pound’s appeal fairly steady, but there is still a lack of domestic support for the British currency.
UK fiscal stimulus has not been hugely impressive to markets and UK data is increasingly showing a dire outlook for Britain’s economy amid the coronavirus pandemic.
Markit’s final UK manufacturing PMI for March was published this morning. While the data was a little stronger than forecast, the details still confirmed that there was a sharp plummet in activity after Britain’s lockdown began.
Responses to Markit's manufacturing survey received after March 20, when schools were shut and the lockdown began, were unsurprisingly much weaker than those between March 12 and 20 (the dates for the flash reading), and point to a huge 7% slump in manufacturing output: pic.twitter.com/j3yjTDYVF6
— Samuel Tombs (@samueltombs) April 1, 2020
GBP/ZAR resilience has been more due to market sentiment, as well as the broad weakness of the South African Rand (ZAR).
South African Rand (ZAR) Exchange Rates Remain Gloomy Following Moody’s Rating Cut
Over the weekend, credit rating agency Moody’s finally cut South Africa’s credit rating to junk status.
The Moody’s rating was previously the only remaining investment-grade rating that South Africa had. There had been speculation it would be cut ever since Fitch and S&P cut their South Africa ratings in 2017.
Concerns over how South Africa’s economy would weather the coronavirus were part of the Moody’s decision.
The South African Rand (ZAR) hit its worst levels in months or years against some major currencies in response to the news.
While some stronger than expected South African trade data yesterday did help the Rand to edge away from its worst levels, this strength has been limited.
Pound to South African Rand (GBP/ZAR) Exchange Rate Awaits Further Economic Signals
Both the Pound (GBP) and South African Rand (ZAR) have limited outlooks.
Due to Britain’s current account deficit, the Pound’s appeal is limited with markets likely to look elsewhere when safe haven demand is boosted.
However, South Africa losing all its investment-grade credit ratings is notably bearish for the Rand outlook.
Unless there is some news or data to bolster South Africa’s economic outlook or a big jump in demand for currencies correlated more with risk-sentiment, the Rand will remain unappealing.
GBP/ZAR could tumble in the coming days if upcoming UK PMIs are shocking to investors. However, markets already expect a poor outlook for Britain’s economy, so the Pound to South African Rand (GBP/ZAR) exchange rate’s movement may remain jittery and limited.