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Near 3-Month-Best for Pound to South African Rand Exchange Rate despite Bank of England’s Outlook

Pound to South African Rand Exchange Rate Continues Climb to Post-May Best 

Investors continue to buy the Pound Sterling to South African Rand (GBP/ZAR) exchange rate this week. This is despite the Bank of England’s (BoE) mixed outlook, and attempts for the South African Rand (ZAR) to rebound from lows. 

Following last week’s GBP/ZAR advances, the pair is currently on track to see yet another week of solid gains. 

Since opening this week at the level of 22.33, GBP/ZAR has been trending with an upside bias. GBP/ZAR saw a jump in response to Bank of England news this morning, and currently trends close to highs of 23.09. 

This was the best GBP/ZAR level in almost three months, since early-May. 

Will the Pound (GBP) remain appealing and hold this week’s gains though? While some of today’s BoE news was relieving, Britain’s outlook is still filled with uncertainty. 

Pound (GBP) Exchange Rates Bounce on Bank of England (BoE) Policy Decision 

Despite a lack of surprise shifts in monetary policy from the Bank of England (BoE), as well as some discussion of controversial monetary policy, the Pound jumped higher this morning. 

Due to concerns over the UK government’s handling of the coronavirus pandemic, as well as economic and Brexit concerns, markets had expected a dovish tone from the BoE. 

However the bank’s projections for 2020 UK growth saw improvement from the forecasts given in May. The bank also said that Britain’s Q2 2020 performance was not quite as bad as feared. 

According to Analysts at MUFG: 

‘Overall, the BoE’s economic outlook is relatively less dovish than expected and the absence of a strong signal in favour of negative rates opens the door for further pound gains in the near-term,’ 

As a result, the Pound advanced this morning. This is despite concerns that the bank noted that it was looking at whether or not negative interest rates would be possible for Britain. 

South African Rand (ZAR) Exchange Rate Losses Limited amid Support in Commodity Prices 

The South African Rand has been hit by rising market fears of a ‘second wave’ of coronavirus infections in the past week. 

However, there are still aspects of risk-sentiment benefitting from the current market conditions, such as loose monetary policy around the world. This has been benefitting some currencies correlated to risk and trade. 

While the Rand is volatile amid coronavirus fears, its losses have been limited due to these supportive factors. According to Michael Widmer, Strategist at Bank of America (BofA): 

‘Loose monetary and fiscal policies around the world have been supportive to most mined commodities, 

Continued fiscal spending as governments are mending the damage from COVID-19, backstopped by central banks, means that interest rates will remain low, at the same time as the economy reflates.’ 

Pound to South African Rand (GBP/ZAR) Exchange Rate Could Tumble Again 

The Pound to South African Rand exchange rate may be rising today, but the Pound is still under broad pressure. 

UK data has been mixed, Brexit uncertainties persist, and the Bank of England (BoE) has indicated that negative interest rates may be possible down the line. 

On top of this, there is fresh speculation over the past week that the UK government could ramp up coronavirus lockdowns amid a ‘second wave’ of infections. 

These factors are likely to keep pressure on Sterling. GBP/ZAR will advance more easily if market risk-aversion continues to weigh heavily on the South African Rand. 

Tomorrow’s South African foreign exchange reserves are unlikely to have much impact on the South African Rand. 

Looking ahead, next week’s UK and South African job market stats will be closely watched to give investors a better idea of the coronavirus pandemic’s impact. 

Surprising developments in coronavirus and Brexit will continue to drive the Pound to South African Rand (GBP/ZAR) outlook as well.