GBP/ZAR Exchange Rate Rises as South Africa’s ‘Fragile Economy’ is Threatened by Covid-19
The Pound to South African Rand (GBP/ZAR) exchange rate rose by 0.2% today, with the pairing currently trading around R22.939.
The South African Rand (ZAR) struggled against the Pound (GBP) following news that tensions between the US and China had increased, leaving many investors weary of the risk-averse South African currency.
Commerzbank’s emerging market analyst Elisabeth Andreae commented in a note:
‘Due to the fragile economy, the currency remains vulnerable, especially if risk aversion rises again.’
‘The downside risks to [the South African Rand] include not only an unfavourable course of the pandemic with further (major) waves of infection, but also renewed fears of an emerging market crisis or an escalation in US-Chinese relations.’
Yesterday also saw South Africa’s retail sales figure for May fall below forecasts at 7.5%. As a result, ZAR investors have become increasingly concerned that the South African economy could be on a slow road to recovery.
Pound (GBP) Rises Despite Growing Concerns for British Economy
The Pound (GBP) rose against the risk-sensitive South African Rand (ZAR) today despite yesterday’s release of the UK GDP figure showing that the British economy had entered a record-breaking recession.
Shadow Chancellor Anneliese Dodd commented on the report, saying:
‘The prime minister will say there’s only so much he could do during a global pandemic but that doesn’t explain why our economy is tanking so badly compared to other countries.’
Meanwhile, reports that the UK is still struggling to end the first wave of Covid-19 has left GBP investors concerned for the British economy.
Nonetheless, Tim Spector, professor of genetic epidemiology at KCL, was relatively optimistic about the UK’s coronavirus situation, saying:
‘It’s encouraging to see that the numbers are coming down slightly across the UK and that the isolated outbreaks in the north of England appear to be well contained so far.
‘This is further confirmation that we aren’t at the beginning of a second wave and rather, still trying to end the first. The figures also suggest that the outbreaks we are seeing in other countries such as Belgium, France and Spain aren’t having an effect here in the UK yet.’
GBP/ZAR Forecast: Deteriorating US-China Trade Relations Could Drag Down the South African Rand
The South African Rand (ZAR) will continue to be driven by risk-sentiment this week. Any further signs that US-China trade relations are deteriorating could drag down the South African currency.
Meanwhile, Sterling investors will be looking ahead to next week’s economic data. Although the first half of the week is relatively quiet, Wednesday will see the release of UK inflation figures for July. As a result, we could see GBP suffer if the outlook for the British economy darkens.
The GBP/ZAR exchange rate could continue to edge higher if the outlook for South Africa’s economic recovery appears increasingly unlikely. Sterling could continue to climb as the risk-sensitive ZAR struggles as markets become more jittery about the global economy.