Pound to South African Rand (GBP/ZAR) Exchange Rate Nervously Edges Higher
Despite a lack of strong demand for Sterling (GBP), the Pound to South African Rand (GBP/ZAR) exchange rate is climbing today. The South African Rand (ZAR) is plummeting today as investors move away from currencies correlated to risk-sentiment.
Last week’s GBP/ZAR movement was heavily mixed. GBP/ZAR opened the week at the interbank level of 21.36 and spent most of the week edging lower.
However, a surge in concerns about the coronavirus impact on South Africa’s economy saw GBP/ZAR make a sudden recovery. GBP/ZAR touched on a high of 21.71 before falling back and closing the week near the interbank level of 21.38.
GBP/ZAR is trending with an upside bias again this week so far. At the time of writing, GBP/ZAR is trending in the region of 21.52.
With both the Pound and Rand jittery, the pair’s movement is likely to be mixed until there are more solid coronavirus developments.
Pound (GBP) Exchange Rate Appeal Mixed as Coronavirus and Brexit Fears Worsen
While the Pound (GBP) has been able to advance against riskier rivals due to fading market demand for risk, its gains are still limited.
Today’s GBP/ZAR gains are more due to the huge weakness of the South African Rand. The Pound itself lacks much drive.
The Pound outlook remains limited overall. Britain’s economy has been hit hard by the coronavirus pandemic, but the UK government’s handling of the pandemic has also been criticised.
Britain’s death count is high compared to many other major economies. Investors are concerned that a potential second wave could hit Britain hard.
On top of this, hard Brexit fears have returned due to the UK government’s refusal to extend the Brexit transition period. According to Viraj Patel, FX and Global Macro Strategist at Arkera:
‘The Pound remains highly sensitive to changes in the external risk environment and is likely to continue trading on a corrective path lower in line with cross-asset markets,’
South African Rand (ZAR) Exchange Rates Throttled by Market’s Coronavirus Panic
Last week, the South African Rand (ZAR) was hit hard by fresh fears over the coronavirus impact on South Africa’s economic activity.
A slew of South African production data came in even worse than forecast. This played a large part in ZAR plummeting towards the end of last week.
However, this week’s continued weakness is more due to global coronavirus developments. Global risk-sentiment took a hit today, when Beijing confirmed a jump of local coronavirus cases. It worsened fears that a second wave could be on the way.
As the Rand is often correlated to market risk and emerging market sentiment, it is likely to remain under pressure if global coronavirus developments worsen.
Pound to South African Rand (GBP/ZAR) Exchange Rate Focusing on Coronavirus
The Pound to South African Rand (GBP/ZAR) exchange rate’s direction going forward depends heavily on global risk-sentiment.
Investors are far less likely to be willing to take risks if the global coronavirus outlook keeps worsening again. For example, if the infection spreads in China once again, investors are likely to rush away from risk-correlated assets.
In this situation, the South African Rand (ZAR) is likely to see continued losses. The Pound (GBP) will benefit from Rand weakness.
On the other hand though, if major economies show that they could prevent a second wave from being bad, risk-sentiment could be a bit more resilient.
Pound investors are also keeping a close eye on upcoming Brexit negotiations. The Bank of England’s (BoE) policy decision on Thursday could also prove influential.
Overall, coronavirus news and Britain’s domestic developments will drive the Pound to South African Rand (GBP/ZAR) exchange rate.