GBP/ZAR Hits 13-Month High as Highly-Mutated Coronavirus Variant Identified

Pound South African Rand (GBP/ZAR) Exchange Rate Holds Near 13-Month High

(Updated 17:00, 26/11/21) The Pound South African Rand (GBP/ZAR) exchange rate retreated slightly from highs the pairing hit earlier in the day, trading around R21.6439 towards the end of Friday’s European session.

The risk-off mood sweeping global markets gained momentum after Belgium identified a case of the new variant of coronavirus initially linked to countries in southern Africa.

With increased fears of tighter restrictions, lockdowns and disruption to global economic activity and recovery, risk-sensitive assets and currencies such as the South African Rand plummeted.

Meanwhile, the Pound received modest support from comments from Bank of England (BoE) chief economist Huw Pill.

While the central bank policymaker outlined a cautious approach to tightening monetary policy, he said interest rates would need to rise gradually if the UK job market continues to show signs of strength.

He added:

“At 4.2% in October, UK CPI inflation is well above its 2% target. This is clearly uncomfortable for a monetary policy maker with the objective of price stability.

“In my view, the ground has now been prepared for policy action.”

Original article continues below:

Pound South African Rand (GBP/ZAR) Exchange Rate Surges as Coronavirus Variant Sparks Safe-Haven Flight

The Pound South African Rand (GBP/ZAR) jumped around 1% on Friday due to concerns over a new highly-mutated variant of coronavirus identified in South Africa.

The news has triggered a flight to safe-haven assets, causing the risk-sensitive South African Rand to plunge sharply, and pushed GBP/ZAR to a 13-month high to trade at R21.6936 at the time of writing.

South African Rand (ZAR) Suffers Aggressive Selloff

The South African Rand (ZAR) has crashed at the end of the week as the emergence of a new variant of coronavirus in South Africa sparked a sharp selloff of the emerging market currency.

Reports describe the new coronavirus variant as the worst identified so far, more transmissible than the Delta variant and could leave vaccines ineffective.

The high number of mutations are different from those that vaccines were developed to target, meaning this latest variant could spread in countries with high vaccination rates.

Chief medical adviser of the UK Health Security Agency, Dr Susan Hopkins commented on the spread of the variant in an area of South Africa:

“We haven’t seen levels of transmission like that since right back at the beginning of the pandemic because of all the mitigation and steps we’ve taken.

“So that would cause a major problem if you had that high transmission with this type of virus, in a population where it may evade the immune responses that are already there.”

Concerns over the highly-muted variant has led to a number of countries imposing travels bans into and out of South Africa, as well as other southern African countries.

Pound (GBP) Movement Driven by Market Jitters

The risk-off mood sweeping markets is also driving movement in the Pound (GBP) at the end of the week.

Sterling has made sharp gains against its more risk-sensitive peers, while struggling against perceived safe-haven currencies like the Euro.

As investors assess the potential impact of a more transmissible coronavirus variant and the possibility of renewed restrictions denting global growth, uncertainty has heightened around expectations for the Bank of England’s (BoE) decision on interest rates at its December policy meeting.

Although it is early to predict how the new variant will affect the UK economy, concerns have caused some investors to reprice bets on a rate hike in December.

According to the CME BoE Watch Tool, the probability of the central bank raising rates in December has declined slightly at the end of the week.

Expectations for an interest rate rise may alter as caution over the threat of the coronavirus variant may cause BoE policymakers to delay raising rates while the impact of the variant becomes apparent.

Pound South African Rand Forecast: Coronavirus Variant Fears in Focus

The Pound South African Rand exchange rate looks likely to continue experiencing significant movement as the new coronavirus variant situation develops.

News of more detail of the variant, and if it has spread to other countries will drive movement in the Pound South African Rand exchange rate.

Market mood will likely remain cautious until more is known about the variant, potentially supporting the GBP/ZAR exchange rate.

Meanwhile, as the concerns sweeping markets have also hit the price of industrial metals, the South African Rand could come under further pressure due to metals being a significant export for South Africa.

The Pound may also experience headwinds, if the latest coronavirus variant impacts UK economic growth forecasts and affects BoE rate hike expectations.

Andrew Roberts

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