Pound to South African Rand (GBP/ZAR) Exchange Rate Falls as Risk-On Trade Returns as Trump’s Health Improves

GBP/ZAR Exchange Rate Sinks as Risk Sentiment Improves

The Pound to South African Rand (GBP/ZAR) exchange rate fell by -0.4% today, with the pairing currently fluctuating around R21.285.

The South African Rand (ZAR) has benefited from improved risk-sentiment this week following news that US President Donald Trump’s health had improved after contracting Covid-19.

Analysts at Reuters commented:

‘Trump’s positive coronavirus test last week rattled global financial markets ahead of the Nov. 3 presidential election, but one of Trump’s doctors said the president’s condition was getting better on Sunday.’

As a result, emerging market currencies like the South African Rand have gained on a return of stability in the US political situation, with Trump set to return to the US presidential election.

Ulrich Leuchtmann, the head of commodity research at Commerzbank, said that the biggest risk facing risky assets was Trump’s Covid-19 diagnosis, saying:

‘[I]t is uncertain whether this has made the biggest risk of the U.S. elections – a long political and legal battle about the result – any more or less likely.’

However, ZAR investors will be focusing on US and Chinese economic data. Any further signs of deterioration in the global economic situation would swiftly compromise the ZAR’s recent gains.

Pound (GBP) Sinks as UK Economy Looks ‘Skewed to the Downside’

The Pound (GBP) failed to gain today despite a stronger-than-expected UK Services PMI for September, which rose from 55.1 to 56.1.

Chris Williamson, the Chief Business Economist at IHS Markit, said:

‘The UK service sector showed encouraging resilience in September, with business activity continuing to grow solidly despite the government’s Eat Out to Help Out scheme being withdrawn.

‘Optimism about the year ahead has meanwhile cooled somewhat, hinting that risks for coming months lie skewed to the downside.’

However, with uncertainty rising over the future between the UK and the EU post-Brexit increasing, GBP investors have remained cautious.

Prime Minister Boris Johnson reiterated that the UK would be ready to leave without a deal by the end of the year.

Mr Johnson said:

‘We’re resolved on either course, we’re prepared for either course and we’ll make it work but it’s very much up to our friends and partners.’

GBP/ZAR Forecast: Could Brexit No-Deal Fears Continue to Drag Down Sterling This Week?

The South African Rand (ZAR) will remain sensitive to global economic developments this week. Any signs of rising Covid-19 cases and economic strains would prove ZAR-negative.

South African Rand (ZAR) investors will be looking ahead to Thursday’s release of the SA Manufacturing Production Index for August. If this shows a downturn in South Africa’s economy, then ZAR would suffer.

Pound (GBP) traders will be eyeing tomorrow’s publication of September’s UK Construction PMI. If this continues to paint a bleak picture for the British economy in the months ahead, GBP would fall.

The GBP/ZAR exchange rate could edge higher this week if global risk sentiment dips.

However, Brexit will continue to dominate UK market attention. So, if a no-deal Brexit appears increasingly likely, the pairing could plummet.

David Moore

Contact David Moore