GBP/ZAR Exchange Rate Edges Higher Despite UK Lockdown
The Pound South African Rand (GBP/ZAR) exchange rate saw an uptick of 0.2% today. The pairing currently trading around R20.637 after last night saw UK Prime Minister Boris Johnson announce a nationwide lockdown to prevent the spread of the coronavirus (Covid-19).
However, Sterling has continued to perform well against the South African Rand as markets continue to shun riskier assets.
Meanwhile, today’s release of the flash UK Markit Services PMI painted a bleak picture for the British economy going forward. The gauge showed a worse-than-expected slump into contraction territory from 53.2 to 35.7.
Chris Williamson, Chief Business Economist at IHS Markit, was downbeat in his analysis, commenting:
‘The surveys highlight how the COVID-19 outbreak has already dealt the UK economy an initial blow even greater than that seen at the height of the global financial crisis.’
‘With additional measures to contain the spread of the virus set to further paralyse large parts of the economy in coming months, such as business closures and potential lockdowns, a recession of a scale we have not seen in modern history is looking increasingly likely.’
The GBP/ZAR exchange rate will likely hold onto its gains as the South African economy – which is already in a recession – is set to face increasing turbulence as the nation faces a 21-day shutdown.
South African Rand (ZAR) Sinks as South Africa Faces 21-Day Shutdown
The South African Rand (ZAR) dipped against the Pound (GBP) after President Cyril Ramaphosa announced South Africa’s lockdown beginning from 26 March.
Mr Ramaphosa said in his statement:
‘While this measure will have a considerable impact on people’s livelihoods, on the life of our society and on our economy, the human cost of delaying this action would be far, far greater.’
However, the South African currency continues to struggle from risk-off market appetite as the global economy continues to teeter towards a recession.
Nolan Wapenaar, the chief investment officer at Anchor Capital, comments:
‘The world is highly unpredictable, and we cannot know when foreign selling of [South African Rand] … will stop, nor how much economic damage we will end up inflicting on ourselves.’
With South Africa’s increasingly draconian measures to curb the spread of Covid-19, the already moribund economy is forecast to face a massive contraction. As a result, investors are steering clear of the South African Rand and seeking out safe-haven currencies like the Swiss Franc and US Dollar.
GBP/ZAR Outlook: Could Further UK Fiscal Action Boost Sterling?
The South African Rand (ZAR) will remain subdued as investors continue to stick to safe-haven assets as the world’s economies are beleaguered by the coronavirus pandemic.
The GBP/ZAR exchange rate will remain sensitive to coronavirus developments this week. Tomorrow’s economic data, which includes the UK inflation report for February, will be overlooked as investors focus on the Government’s response to the pandemic.
Any signs of Chancellor Rishi Sunak announcing further support for the British economy would provide a boost for the Pound.