The Pound to South African Rand (GBP/ZAR) exchange rate took a tumble last week as the Bank of England’s (BoE) hints regarding negative interest rates extended the pairings losses.
Last Week: Pound Undermined by Dovish BoE
The Pound faced a sustained sell-off against the South African Rand last week, driven mostly by the Bank of England as it dropped its strongest hints yet that negative interest rates may be on the cards.
This came as the minutes from last week’s policy meeting revealed that members had been briefed on how negative interest rates might be introduced.
Also limiting the appeal of Sterling through last week’s session were some lacklustre data releases, with a rise in unemployment and sharp slump in domestic inflation both exerting pressure on GBP/ZAR through the first half of the week.
Meanwhile, Rand struck higher through the first half of the week, in response to improving market sentiment.
These gains were extended following the South African Reserve Bank’s (SARB) own policy meeting, in which it opted to keep interest rates on hold, despite of the previous week’s appalling GDP figures.
Three Things to Watch out for This Week
1. Coronavirus Developments
Likely infusing fresh volatility into the GBP/ZAR exchange rate this week will be the renewed focus on the coronavirus pandemic. This could hit the Rand particularly hard as fears over a second wave are likely to result in a risk-off tone.
2. Brexit Headlines
For GBP investors the spotlight this week will also be on the latest round of Brexit trade talks, with the Pound likely to face some notable pressure if tensions over the internal markets bill leaves negotiations deadlocked.
3. UK PMIs
Also likely to influence Sterling sentiment will be the UK’s latest PMI releases. This could also pressure the Pound if they show economic momentum private sector activity began to cool this month.
Looking ahead, it seems safe to assume that the double threat of Brexit and the coronavirus pandemic will infuse volatility into the GBP/ZAR exchange rate this week.