Pound South African Rand Exchange Rate Rises on South Africa’s Gloomy Economic Outlook

GBP/ZAR Exchange Rate Rises as South Africa’s Economic Outlook Darkens

The Pound to South African Rand (GBP/ZAR) exchange rate rose by 0.5% today despite the risk-sensitive South African Rand benefiting from rising optimism over coronavirus treatment trials and plans to reopen the US economy. The pairing is currently trading around R23.423.

However, ZAR investors are becoming increasingly concerned for South Africa’s heavily industrialised economy as analysts predict a budget deficit of -10% of the country’s GDP this fiscal year.

The outlook for the South African Rand has also deteriorated following rating agencies Moody’s and Fitch’s downgrading of the country’s sovereign credit rating following the nation’s 27th March coronavirus lockdown.

Moody’s was notably downbeat about the South African economy in Tuesday’s statement, saying:

‘We forecast real GDP will contract by 2.5% in 2020, as the coronavirus crisis weighs on economic activity.’

‘The lockdown will reduce the country’s productive capacities, with the transport, hospitality, mining and manufacturing industries particularly affected, while weighing on households’ consumption.’

Today also saw ZAR react negatively to news that the Chinese economy shrank by 6.8% in the first three months of 2020. With China being one of South Africa’s largest trading partners, this further added to the nation’s economic woes.

Pound (GBP) Edges Higher Despite No-Deal Brexit Fears

The Pound (GBP) rose against the weaker South African Rand (ZAR) today despite growing fears of a no-deal Brexit after the UK and EU reconvened trade negotiations this week.

Yesterday saw Downing Street dismiss any likelihood that the UK could request an extension to the transition period beyond the 31st December deadline.

Many investors are now concerned that the UK could face further economic uncertainty in the form of a chaotic exit from the European Union.

David Frost, the EU Adviser to Prime Minister Boris Johnson commented:

‘Extending would simply prolong negotiations, create even more uncertainty, leave us liable to pay more to the EU in future, and keep us bound by evolving EU laws at a time when we need to control our own affairs. In short, it is not in the UK’s interest to extend.’

Sterling has remained under pressure after Foreign Secretary Dominic Raab announced yesterday that the UK would face another three weeks of lockdown to curb the spread of the coronavirus. Consequently, GBP investors are now concerned over the UK’s economic health going forward.

GBP/ZAR Forecast: Sterling to Suffer on Rising Brexit Uncertainty?

The South African Rand (ZAR) will remain sensitive to global economic developments going into the weekend, with any further signs that the US economy could reopen earlier than expected boosting the risk-sensitive ZAR

The GBP/ZAR exchange rate could begin to shed some of its gains into the weekend and beyond as the UK faces increasing uncertainty over Brexit and the coronavirus. Furthermore, any indications that the Covid-19 fatalities rising over the weekend would weaken Sterling.

David Moore

Contact David Moore