Pound South African Rand (GBP/ZAR) Exchange Rate Regains Ground but UK Worries Grow

Pound South African Rand (GBP/ZAR) Exchange Rate Recoups Losses despite Looming Supply Chain Crisis

(Updated 15:30, 2/9/21) The Pound South African Rand (GBP/ZAR) exchange rate witnessed a sharp turnaround this afternoon, with the pair now trading above today’s opening levels.

The shift seems to be driven by an upside in the Pound (GBP), as GBP has bounced off today’s lows against many other rivals, although there’s no clear catalyst for Sterling’s renewed strength.

In fact, worries are growing over the UK’s supply chain crisis, with industry leaders warning of a ‘perfect storm’ of price rises and worker shortages in the run up to Christmas.

Will GBP/ZAR be able to hold the high ground as the European session comes to a close?

Original article continues below:

Pound South African Rand (GBP/ZAR) Exchange Rate Dips on Rising Appeal of the Riskier Rand

The Pound South African Rand (GBP/ZAR) exchange rate has slipped to a two-month low this morning, as concerns over the UK’s economic recovery continue to exert downward pressure on the Pound (GBP).

Meanwhile, the South African Rand (ZAR) is benefitting from an improving market mood, which is boosting the demand of the emerging-market currency.

Pound (GBP) Weakens as UK Concerns Drag on GBP

The Pound is stumbling against its riskier rivals today, as a lack of economic data from the UK leaves Sterling rudderless.

In addition, recent downbeat reports have worried some economists that the UK’s economic recovery may have been stifled by rising coronavirus cases and the knock-on effects of Brexit on the country’s labour market and trade.

Yesterday’s final manufacturing PMI, though revised slightly higher than preliminary estimates, showed that factory output expanded at its slowest pace in five months. The reading also revealed the fourth consecutive month of slowing growth.

Global Covid-related supply chain disruption was a key cause of the deceleration in manufacturing activity, but domestic issues also played a part. The UK’s rising infection rate and resulting ‘pingdemic’ led to staffing issues, while Brexit added to shortages in the labour market.

The PMI followed Tuesday’s consumer credit report, which saw consumer credit drop by £0.042bn versus the expected £0.441bn increase. The surprise drop suggests that consumer spending – which has been a key driver of the UK’s economic recovery – fell in July as rising Covid cases dented consumer confidence.

South African Rand (ZAR) Gains on Upbeat Market Mood

The Rand, meanwhile, is enjoying increased interest thanks to a growing appetite for risk among investors and a prevailing weakness in the US Dollar (USD).

While the pandemic continues to cast a shadow over the global economic recovery, a slightly more optimistic tone has helped drive demand in riskier currencies, such as the Rand.

The major vaccines have proved effective in reducing serious illness and death from coronavirus, and vaccination rates are rising around the world. This means increased economic activity and far less severe restrictions should new lockdown measures need to be imposed in the future.

In addition, the global economic recovery – though showing signs of slowing – has broadly been better than expected. One indicator is that the Federal Reserve, European Central Bank (ECB) and Bank of England (BoE) have all begun to discuss tapering options in recent weeks, suggesting that their relative economies are in good enough positions for stimulus packages to be reviewed.

Yet all three central banks are taking a cautious approach to winding down fiscal support, allaying investors’ fears of a policy misstep.

Additionally, ZAR exchange rates are benefiting from the currency’s negative correlation to the US Dollar, which has slipped so far this week as Fed Chair Jerome Powell kept quiet about a tapering timeline and yesterday’s jobs data missed market forecasts.

Also supporting the Rand, gold prices are holding steady at a one-month high after rising steadily last week. As gold is one of South Africa’s key mineral exports, this is helping to buoy ZAR.

GBP/ZAR Exchange Rate Forecast: Will Risk Appetite Remain Strong?

With no data from the UK or South Africa today, the GBP/ZAR pair may be primarily influenced by the market mood.

While risk appetite has improved this week, there are still major concerns over the global economy and rising Covid cases. In the current uncertain climate, risk sentiment can swing wildly, so GBP/ZAR investors should remain vigilant.

Towards the end of the week, Sterling could take a hit as the UK’s finalised services PMI is forecast to confirm a slowdown in service-sector activity. If the report prints as expected, it may exacerbate concerns over the UK’s economic rebound.