Pound South African Rand Exchange Rate Slips as SA 2021 Budget Encourages Investors

South African Budget Dents Pound South African Rand Exchange Rate

The Pound to South African Rand (GBP/ZAR) exchange rate faltered in the wake of South Africa’s 2021 budget announcement.

As the government backtracked on previously planned tax increases in favour of bolstering consumption and investment within the embattled economy this gave the South African Rand (ZAR) a boost.

With Finance Minister Tito Mboweni also setting ambitious debt-consolidation targets confidence in the outlook of the South African economy generally improved, as high levels of state debt have previously discouraged markets.

Hopes that the move could help to avert a potential debt crisis in the coming year gave investors reason to favour the South African Rand against its rivals, with the country’s financial situation having improved since the mid-term budget.

Fading Impact of Covid-19 Recovery Optimism Limits Pound Strength

On the other hand, support for Pound Sterling (GBP) proved limited today as the impact of the UK government’s lockdown exit plan announcement faded.

While investors remain confident in the prospect of a second quarter economic recovery, with non-essential retail shops expected to reopen in April, this was not enough to sustain the bullish run of GBP exchange rates.

As the Pound has experience strong gains over the course of the last week this left the GBP/ZAR exchange rate vulnerable to a degree of correction.

A relative lack of fresh UK economic data releases limited the potential for fresh Pound gains, meanwhile.

Resilient UK Housing Market to Offer GBP Exchange Rate Support

Support for the Pound could pick back up ahead of the weekend, though, if February’s Nationwide housing price index proves positive.

Evidence that the UK housing market remained resilient even in the face of the ongoing national lockdown could encourage GBP exchange rates to rally once again.

As the strength of the housing market has previously helped to offset weakness in other areas of the economy another positive reading here may reduce fears of a deeper first quarter growth contraction.

On the other hand, if price growth fails to hold up on the month this could expose the Pound to South African Rand exchange rate to further selling pressure.

Narrowed SA Trade Surplus Forecast to Limit South African Rand Demand

The South African Rand may come under pressure on Friday, meanwhile, on the back of the latest balance of trade report.

With forecasts pointing towards a narrowed surplus in January worries over the strength of the economic outlook may pick up once again.

Even if the trade balance remains in a state of surplus any weakening of trade conditions could still put pressure on the South African Rand, especially in the face of any renewed market risk aversion.

Unless trade holds up better than expected at the start of 2021 the GBP/ZAR exchange rate could find itself on a fresh uptrend.

Louisa Heath

Contact Louisa Heath