Pound South African Rand (GBP/ZAR) Exchange Rate Tumbles as South Africa Considers Further Easing of Lockdown

Rumours of Easing SA Lockdown Weigh on Pound South African Rand (GBP/ZAR) Exchange Rate

Reports that the South African government is considering easing its lockdown restrictions saw the Pound Sterling to South African Rand (GBP/ZAR) exchange rate slump sharply.

As the economic impact of South Africa’s strict lockdown conditions mount investors were encouraged by the possibility of a further lifting of restrictions.

The South African Rand (ZAR) also benefitted from increasing speculation that the Federal Reserve could cut interest rates into negative territory, news which bolstered market risk appetite.

While markets remain wary of the potential for a fresh wave of Covid-19 infections as economies begin the slow process of gearing back up this failed to dent the Rand today.

Negative UK Gross Domestic Product Forecast to Drag Pound Lower

Support for Pound Sterling (GBP) may weaken more substantially tomorrow, meanwhile, on the back of the first quarter UK gross domestic product report.

With the quarterly growth rate expected to drop by an unprecedented -2.5% the GBP/ZAR exchange rate looks vulnerable to a fresh downturn.

Confirmation that the economy took a major hit in the first quarter, as a result of the lockdown which began in March, could weigh heavily on the Pound.

Although investors widely expect to see a significant deterioration in growth momentum this could still see GBP exchange rates trending sharply lower across the board on Wednesday.

Unless the March growth reading can demonstrate greater resilience than anticipated the Pound looks set to remain on the back foot in the near term.

Weak UK Production Figures Set to Add to Pound Weakness

Although the UK GDP report looks set to dominate the headlines the Pound could still come under pressure thanks to March’s industrial and manufacturing production figures.

With both looking set to show a significant drop on the month in response to the lockdown investors are likely to find another reason to sell out of the Pound this week.

As the UK government continues to outline its Covid-19 strategy this could provoke additional jitters for GBP exchange rates over the coming days.

Until markets see significant hope of the economy returning to normal in the second half of 2020 the Pound’s ability to gain ground is likely to prove limited.

South African Rand Looks Vulnerable to Changes in Market Risk Sentiment

Any fresh deterioration in global market risk appetite could see the South African Rand stumble, however.

As the South African economy remains vulnerable to weaker levels of global trade activity any souring in market sentiment may weigh heavily on ZAR exchange rates.

On the other hand, as long as the US Dollar (USD) remains out of favour with investors this could help the Rand to hold onto a stronger footing.

If Thursday’s first quarter unemployment figure shows a sharp increase, though, the GBP/ZAR exchange rate may find a solid rallying point.

Louisa Heath

Contact Louisa Heath