Pound South African Rand Weekly Forecast: GBP/ZAR Exchange Rate to Climb on Hawkish Fed?

The Pound South African Rand (GBP/ZAR) exchange rate fluctuated last week, losing ground overall, as the Omicron Covid variant caused volatility in the market. 

GBP/ZAR has firmed this morning as more cases of the new coronavirus strain are identified around the world. Markets are understandably spooked, which is weighing on the risk-sensitive Rand. 

What’s Been Happening: GBP/ZAR Volatile amid Omicron Uncertainty 

The South African Rand (ZAR) gained against the Pound (GBP) through the first part of last week as an increasing appetite for risk supported the emerging-market currency. 

Initial reports from South Africa suggest that Omicron is less dangerous than the Delta variant, which cheered investors. 

However, risk appetite turned in the second part of the week as Omicron cases rose rapidly around the world. In addition, geopolitical tensions between the US and its rivals China and Russia weighed on the market mood. 

Meanwhile, rising UK Covid cases put pressure on the Pound. Last Monday, Health Secretary Sajid Javid warned that Omicron could ‘knock us off our road to recovery’. 

GBP then fell sharply as Boris Johnson announced plans to implement new Covid restrictions, prompting fears that it would dent the UK’s fragile economy. 

Sterling regained some losses at the end of the week, with investors buying the dip. But a sharp slowdown in UK GDP growth prevented the Pound from making a full recovery.

Three Things to Watch Out for This Week 

  1. South African CPI 

Economists expect inflation in South Africa to hit 5.4%. If it does, ZAR could catch some bids. 

  1. Interest Rate Decisions  

The rate decisions from the Federal Reserve and the Bank of England (BoE) will likely have a significant effect on GBP/ZAR. If the Fed speeds up its tapering plans, the Rand could tumble. However, a dovish BoE could cap the Pound’s gains. 

  1. Omicron 

As the Omicron variant spreads and its impact becomes clearer, its impact on risk appetite will likely affect the Rand. 

GBP/ZAR Forecast 

If the Fed accelerates its tapering of bond purchases, as expected, the US Dollar (USD) could soar. This would likely draw capital away from emerging markets, such as South Africa, thereby weakening the Rand. As a result, we could see GBP/ZAR climb this week. 

Samuel Birnie

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