Pound to South African Rand (GBP/ZAR) Rises as ‘Difficult Days Lie Ahead’ for the South African Economy

GBP/ZAR Exchange Rate Edges Higher as Risk-Off Markets Weigh on the South African Rand

The Pound to South African Rand (GBP/ZAR) exchange rate rose by 0.8% today, with the pairing currently trading around R21.56.

The South African Rand (ZAR) has suffered from risk-off markets this morning after it was revealed that several new cases of Covid-19 had been detected in a German abattoir.

Germany’s R number rocketed from 1.79 to 2.88, increasing fears of a possible second wave of cases in the Eurozone’s largest economy.

Fiona Cincotta of City Index commented:

‘Even though the number of cases in Germany is low, the rise is unnerving. The markets will be watching developments closely here.’

‘On a positive, the recent outbreak in Beijing appears to be fading.’

As a result, the risk-sensitive South African Rand has suffered from a sell-off of risky assets as the global economic outlook dims on concerns over a second wave of coronavirus cases.

Today also saw South African President Cyril Ramaphosa warn of further job losses in South Africa. Consequently, ZAR investors are becoming less confident about South Africa’s economy’s recovery.

Mr Ramaphosa commented:

‘For a country which was already facing an unemployment crisis and weak economic growth, difficult decisions and difficult days lie ahead.’

Pound (GBP) Rises as UK Economic Hopes Grow as PM is Expected to Ease Social Distancing Guidelines

The Pound (GBP) rose against the South African Rand (ZAR) today after hints that Prime Minister Boris Johnson could announce an easing of the social distancing guidelines. As a result, this has boosted optimism in the UK’s economic recovery in the coming months.

Analysts at Reuters commented:

‘The announcement, to be made on Tuesday, will apply to all venues including offices, schools and pubs, the [The Telegraph] reported, adding that it will take effect from July 4.’

‘The move will allow people to remain a metre away from others if they take additional measures to protect themselves, such as wearing a mask, according to the report.’

However, today saw the release of the UK’s CBI Industrial Trends Survey for June plummet to record lows of -58%. Consequently, GBP investors are becoming increasingly concerned for the UK’s industrial sector’s recovery from the Covid-19 crisis.

Anna Leach, CBI Deputy Chief Economist, commented:

‘The UK manufacturing sector remained in a deep downturn in June due to the ongoing COVID-19 crisis. [However,] [f]irms are again hoping that this will ease somewhat in the next three months.’

GBP/ZAR Outlook: Could an Improving UK Services Sector Boost Sterling?

South African Rand (ZAR) investors will be paying close attention to tomorrow’s release of the SA unemployment rate report for the first quarter. However, if unemployment continues to deteriorate at the beginning of the year, we could see ZAR sink.

The South African Rand (ZAR) will also remain sensitive to risk sentiment this week. We could see the ZAR/GBP exchange rate suffer if fears over a possible second wave of Covid-19 cases intensify.

Pound (GBP) investors will be looking ahead to tomorrow’s release of the UK Markit Services PMI for June. As a result, we may see Sterling rise if the UK’s largest sector shows any marked improvement this month.

David Moore

Contact David Moore