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Pound South African Rand Exchange Rate Rises, BoE Slashes Interest Rate to an All-Time Low

South African Rand Currency Forecast

GBP/ZAR Exchange Rate Edges Higher, Covid-19 Could Be Sent ‘Packing’ in 12 Weeks

The Pound South African Rand (GBP/ZAR) exchange rate continued to edge higher today after the Bank of England (BoE) cut its interest rates to its lowest level ever at 0.1%. The pairing currently trading around R20.402.

Sterling also benefited from a stabilisation in global markets as central banks and governments continue to make significant efforts to curb the economic impact of the Covid-19 pandemic.

Jeremy Thomson-Cook, the Chief Economist at Equals Group, comments:

‘Lower rates and additional quantitative easing can keep markets satisfied and borrowing costs for both businesses and the government down but unless money is forced into the hands of small businesses soon, then it will be for nothing; they are the ones laying off staff due to a liquidity shock.’

Yesterday also saw Prime Minister Boris Johnson say that the UK could have Covid-19 sent off ‘packing’ in 12 weeks with the help of mass testing and social distancing.

With a light now at the end of the tunnel, Sterling investors have become more optimistic that the UK economy could scrape through the crisis. The BoE also stated yesterday that there were more stimulus measures to come after announcing its further fiscal injection of £200bn.

The Bank of England said in its statement:

‘The spread of Covid-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary.’

SARB Rate Cut Fails to Boost South African Rand (ZAR)

The South African Rand (ZAR) failed to benefit from yesterday’s rate cut from the South African Reserve Bank (SARB). The Bank slashed its rates from 6.25% to 5.25% but failed to stimulate market appetite for the emerging market currency.

With South Africa’s mostly industrialised economy already in a recession, Covid-19 is set to derail its tourist industry and commodity exports to China, its largest trading partner.

Today also saw South African markets close in celebration of Human Rights Day, an important Bank Holiday in South Africa. This has left the South African Rand rudderless and sensitive to global economic developments.

Quinten Bertenshaw, Director at ETM Trading, was downbeat in his analysis of ZAR, commenting:

‘The [South African Rand] is not alone in its losses … unfortunately [ZAR] being as liquid as it is, it’s being caught up in the foray.’

‘Anybody that’s looking to hedge out any EM (emerging market) risk at the moment will be doing it in the [South African Rand].’

GBP/ZAR Outlook: Could Sterling Rise on Further Fiscal Stimulus?

Looking ahead, Sterling will continue to rise against the South African Rand (ZAR) if the BoE continues to grant stimulus measures to boost the British economy.

Pound traders will also be paying close attention to the Government and Chancellor Rishi Sunak. Any indications that Downing Street could continue to bolster the economy throughout the Covid-19 crisis would prove Pound-positive.

The South African Rand (ZAR) will remain under pressure from risk-off market mood as investors continue to seek out safe-haven currencies like the US Dollar and Swiss Franc instead.