Boost to Risk Sentiment Sends the Pound South African Rand (GBP/ZAR) Exchange Rate Lower

Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Falls as Risk Appetite Rises

The Pound Sterling South African Rand (GBP/ZAR) exchange rate slumped on Wednesday, leaving the pairing trading at around R22.9371.

The Rand firmed today, benefitting from the improved risk sentiment. Although investors remained cautious due to the global and local economic outlook.

Risk appetite improved and commodity assets received a boost as more countries began to ease coronavirus lockdown restrictions.

However, any gains may have been limited by the likelihood that any cure for the coronavirus is unlikely to come before 2021.

South African Rand (ZAR) Makes Gains despite Record Low PMI

The South African Rand was able to make gains against the Pound despite data showing private sector activity slumped to a record low.

April’s business survey showed company closures due to the nationwide coronavirus lockdown pushed the PMI from 44.5 to 35.1.

This was the lowest level since the survey began in 2011, and below the no-change 50 mark for the 12th month in a row.

The country is currently in its sixth week of lockdown, and while this has been partially eased since Friday, the economy which is already in a recession is expected to take a huge hit.

Commenting on the PMI data, IHS Markit economist, David Owen noted:

‘The plunge in the South Africa PMI was testament to the impact that the nationwide lockdown has had on the economy.

‘With the lockdown in place, many firms simply shut down operations, rather than partially reducing output.

‘As such, the magnitude of the collapse in economic activity could be even more cataclysmic than the index suggests, with jobs and revenues set to suffer greatly as well.’

Pound (GBP) Falls on Reports of Three-Stage Coronavirus Plan

Sterling struggled to make gains against the Rand today, despite reports revealing the UK has drawn up a three-stage plan to ease the coronavirus restrictions.

This comes just as Boris Johnson must review the current lockdown. Although it is likely the lockdown will be extended as the Prime Minister has said he is worried about triggering a second deadly wave of the coronavirus.

According to Derek Halpenny, MUFG strategist:

‘Another three weeks of lockdown, or close to that, is likely to be confirmed by PM Johnson on Sunday, underlining again the fact that the UK is behind the rest of Europe in this crisis.

‘We continue to see downside risks for the pound given the severity of the COVID impact looks to be greater in the UK than elsewhere.’

Meanwhile, the Times has said the first stage of the three-phase plan would involve small shops reopening as well as outdoor workplaces.

The second would include large shopping centres and more people will be encouraged to go back to work.

The Times also noted that places such as pubs, hotels and restaurants will be the last places to open.

Pound South African Rand Outlook: Bank of England in Focus

Looking ahead, the Pound (GBP) is likely to suffer further losses against the Rand (GBP) following the Bank of England’s (BoE) monetary policy meeting on Thursday.

If the BoE emphasise the damage the current lockdown restrictions are causing, Sterling will edge lower.

Meanwhile, the Rand could edge slightly lower following the release of SACCI’s business confidence.

If April’s business confidence slumps further than expected, it could dampen ZAR sentiment and leave the Pound South African Rand (GBP/ZAR) exchange rate largely flat.

Millie Empson

Contact Millie Empson