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Moody’s Slashes South Africa Outlook, Pound to South African Rand Exchange Rate Advances

Pound to South African Rand Exchange Rate Benefits from Broad ZAR Weakness

While the Pound (GBP) has been weaker against many major currencies this week so far, the Pound Sterling to South African Rand (GBP/ZAR) exchange rate has advanced instead. Concerns about South Africa’s economy weigh heavily on the South African Rand (ZAR).

The Pound was resilient against Rand strength last week. GBP/ZAR recovered from losses to edge higher from 19.41 to 19.45 throughout the week.

After a brief dip lower on Pound weakness yesterday, the Rand started to plunge and GBP/ZAR advanced. At the time of writing on Tuesday, GBP/ZAR is trending near the level of 19.53.

Sterling investors are awaiting key data. However, South Africa’s economic outlook has been notably impacted by the latest Moody’s developments.

Pound (GBP) Exchange Rates Lack Drive as Investors Await Key Data

Last week saw investors pile into the Pound. Markets reacted to news that UK Prime Minister Boris Johnson had reshuffled his government cabinet.

Investors were particularly bullish on news that Sajid Javid had quit as Finance Minister and was replaced by loyalist Rishi Sunak. Analysts predict Sunak could be more willing to offer an expansive budget plan that would boost the economy.

This doused Bank of England (BoE) interest rate cut speculation and led to a big Pound boost.

What’s more, Sterling has been able to sustain most of those gains. The Pound saw limited losses yesterday as investors sold it from its best levels, but the British currency has held most of last week’s gains.

Britain’s economic outlook is improving due to budget hopes and solid data. According to Lee Hardman, Currency Analyst at MUFG, investors are paying more attention to the improving outlook:

‘The positive impact on the Pound from the improving outlook for the UK’s economy is outweighing the negative weight provided by continued concerns over the UK’s future trading relationships in the near-term,’

South African Rand (ZAR) Exchange Rates Hit by Moody’s Gloomy South African Outlook

GBP/ZAR was still able to advance today thanks to notable losses in the South African Rand.

Investors have been selling the Rand since yesterday, when credit rating agency Moody’s announced it would cut its South African growth outlook.

Moody’s South African growth forecast was slashed significantly, by more than half to 0.7% from 1.5%.

On top of this, the agency’s dire tone was perceived as indicating that it could cut South Africa’s credit rating. According to Lukman Otunaga from FXTM:

‘If the Budget speech fails to offer the detail and insight Moody’s seek, South Africa could lose its last investment-grade credit rating – something that may send the Rand tumbling,’

These factors left the South African Rand considerably weak today.

Pound to South African Rand (GBP/ZAR) Exchange Rate Outlook Depends on Upcoming Data

The South African Rand (ZAR) may remain weak in the coming sessions unless there is a shock uptick in South African data. Rand investors are now eagerly anticipating South Africa’s latest budget as well as Moody’s credit rating review in March.

With the Rand likely to remain weak, the Pound to South African Rand exchange rate’s movement could be more influenced by the Pound and upcoming UK data.

Hopes for Britain’s economic outlook to improve are among the primary causes of Pound strength lately, so further strength is possible if data continues to impress.

Tomorrow will see the publication of Britain’s January inflation rate, with retail sales due on Thursday and PMI projections coming in on Friday.

If upcoming UK data impresses investors, Britain’s economic outlook could continue to improve and the Pound to South African Rand (GBP/ZAR) exchange rate may be in for further gains.