Pound to South African Rand (GBP/ZAR) Exchange Rate Rises as South Africa Faces ‘Economic Firestorm’ from Covid-19

GBP/ZAR Exchange Rate Edges Higher as South Africa’s Economy Suffers

The Pound to South African Rand (GBP/ZAR) exchange rate rose by 0.5% today. South African President Cyril Ramaphosa warned that there was no end in sight to the country’s lockdown. As a result, the pairing is currently trading around R22.685.

Mr Ramaphosa warned:

‘If we lift the lockdown too abruptly and too quickly, we risk a rapid and unmanageable surge in infections. We will therefore continue to proceed cautiously, informed by the best available evidence.’

The South African Rand (ZAR) has also suffered from a number of South African Businesses and union leaders warning of the nation’s ‘economic firestorm’.

However, with South Africa’s government slowly easing lockdown measures to buffer the fall out from shuttering the economy, some South African Rand investors are feeling a little more optimistic.

Pound (GBP) Rises Despite UK Councils Fearing Cuts of Up To 20%

The Pound (GBP) rose against the South African Rand (ZAR) despite rising fears for England’s councils, which are concerned over having to make cuts of up to 20%. Furthermore, councils face social care funding shortfalls of around £3.5 billion due to the economic ravages of the coronavirus.

Nick Forges, the leader of the LGA Labour group and leader of Newcastle city council, commented:

‘The funding gap that councils now face is terrifying. Social care is largely funded by councils up and down the country, and makes up a huge proportion of our spending. We have a legal duty to balance budgets, so unless the funding gap is closed then cuts are inevitable.’

Following yesterday’s dismal UK GDP report for the first quarter Sterling traders have become increasingly worried about the British economy going forward.

Additionally, the first quarters reading only included a couple of weeks’ worth of the UK’s lockdown period. As a result, analysts expect the UK growth data to get much worse in the second quarter.

Michael Hewson, the chief market analyst at CMC Markets UK, commented:

‘This morning’s UK data may not have been as bad as predicted but it can’t disguise the fact that worse is yet to come.’

GBP/ZAR Forecast: Could the South African Rand Rise on Improving Risk Sentiment?

Looking ahead, the Pound (GBP) will continue to be driven by coronavirus factors. However, if the UK’s rate of infection shows any signs of easing off, then we could see Sterling rise.

However, with Britain facing a significant recession this year, the GBP/ZAR exchange rate is likely to suffer.

The South African Rand (ZAR) could edge higher this week if risk-sentiment continues to improve. With a number of large economies continuing to open up, we could see the risk-sensitive ZAR rise.

David Moore

Contact David Moore