Pound to South African Rand (GBP/ZAR) Exchange Rate Sinks as Positive Chinese Data Continues to Buoy Risky Assets

GBP/ZAR Exchange Rate Falls as Risk Sentiment Remains High Despite US Political Uncertainties

The Pound to South African Rand (GBP/ZAR) exchange rate fell by -0.7% today, with the pairing currently fluctuating around R21.614.

The South African Rand (ZAR) has benefited from steadying risk-sentiment today on hopes of a possible UK-EU Brexit breakthrough and following last evening’s heated US Presidential debate between Donald Trump and Joe Biden.

Siobhan Redford, an Economist at Rand Merchant Bank, said:

‘It appears that there is still some hope on the negotiating table that a Brexit deal could be reached, and it seems clear that the uncertainty surrounding a deal will become less so by the middle of October.’

Meanwhile, the South African Rand (ZAR) does face various risks, such as the nation’s uncertain Coivd-19 situation and imminent strains on the global economy.

Kamakshya Trivedi, the Chief Emerging Markets Macro Strategist at Goldman Sachs, commented:

‘Given significant domestic risks, however, including South Africa’s October mid-term budget announcement for the Rand… [T]he key question for [the] currency is whether high global betas can (eventually) trump domestic headwinds. On this front, we are optimists; with Chinese data – to which ZAR is sensitive – suggesting a continued recovery.’

In South African economic data, today saw the release of August’s South African M3 Money Supply, which beat forecasts and rose to 10.86%.

However, this was not enough to spark confidence in the nation’s economy as Covid-19 continues to threaten to derail many South African business in the coming months.

Pound (GBP) Sinks as Fears of Dovish BoE Weigh on UK Markets

The Pound (GBP) struggled today despite the Bank of England’s Chief Economist, Andrew Haldane, ruling out negative interest rates – for now.

As a result, GBP investors have become concerned that, in the months ahead, the BoE could become more dovish and take rates into negative territory.

In UK economic data, today saw the release of the quarter-on-quarter UK GDP figure for the second quarter fall by -19.8%.

Consequently, GBP investors are becoming increasingly concerned as the UK’s growth has hit record lows for Q2.

The Office for National Statistics (ONS) commented:

‘It is clear that the UK is in the largest recession on record.’

‘The latest estimates show that the UK economy is now 21.8% smaller than it was at the end of 2019, highlighting the unprecedented size of this contraction.’

GBP investors are also cautious following the passing of the controversial Brexit Internal Market Bill through the House of Commons. This has sparked fears that the UK’s negotiation position – both with the EU and internationally – could be seriously compromised.

GBP/ZAR Outlook: Could Brexit Trade Talk Progress Boost the Pound?

South African Rand (ZAR) investors will be awaiting tomorrow’s release of September’s South African Total New Vehicle Sales report. If this improves, then we could see ZAR rise.

The South African Rand will, however, remain sensitive to global risk sentiment. Any further signs of a struggling global economy would prove ZAR-negative.

Pound (GBP) traders will be looking ahead to tomorrow’s UK Markit Manufacturing PMI. If this shows a marked rise, then we could see Sterling recover some of its losses.

The GBP/ZAR exchange rate will be driven by Brexit developments this week. If UK-EU trade negotiations show any signs of progress to a post-Brexit trade deal, then Sterling would benefit.

David Moore

Contact David Moore