Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Muted on Increasing US-China Tensions
The Pound Sterling South African Rand (GBP/ZAR) exchange rate remained flat this morning, leaving the pairing trading at around R21.5847.
The South African Rand was able to edge slightly higher against a weakened Pound on Friday as traders waited to see how the US would respond to China’s security law on Hong Kong.
However, the Rand edged lower, leaving the pairing flat as traders worried about deteriorating US-China relations.
US President Donald Trump is due to hold a press conference later today and traders fear he will revoke Hong Kong’s special status under US law. This allows it to function as a global financial hub.
According to FXTM’s market analyst, Han Tan:
‘[The US] rhetoric is set to evolve into actual policies, potentially in the form of sanctions, which could shatter the stability that the world sorely needs in these early days of the post-pandemic era.’
If the US revoke Hong Kong’s special status, this could cause traders to flock back to the safety of currencies such as the US Dollar (USD).
This would see the risk-sensitive Rand give up more of this morning’s gains against a weaker Sterling.
ZAR gains have already been limited by increased US-Sino tensions, and in a note, NKC African Economics’ analysts wrote:
‘The local unit ran out of steam mid-session as US-Sino tensions outweighed positive sentiment.’
Pound (GBP) Flat on Brexit Pessimism and Negative Rate Speculation
Sterling remained flat against the Rand on Friday as Brexit talks and speculation the Bank of England (BoE) will send rates into negative territory weighed on the currency.
Brexit has continued to weigh on GBP as reports have suggested talks between London and Brussels have not gone so well.
With the deadline for the transition period soon approaching, Sterling has become a riskier bet for investors.
Yesterday, the European Union’s chief negotiator, Michel Barnier called on the UK to be more realistic if it wanted to secure a Brexit deal.
Negative rate speculation has also plagued the Pound, despite BoE chief economist, Andy Haldane stating the bank was not close to taking rates below zero. However, markets are already pricing in this scenario.
Sterling has not been able to escape coronavirus worries either, as a coronavirus-induced recession has also dampened sentiment.
Prime Minister Boris Johnson’s announcement for further lockdown easing did little to boost the currency.
Investor mood deteriorated further after BoE policymaker, Michael Saunders said the UK’s economy was unlikely to recovery fully in the next two to three years.
Pound South African Rand Outlook: PMI and Consumer Confidence in Focus
Looking ahead to Monday, the Pound (GBP) could suffer further losses against the South African Rand (ZAR) following the release of final PMI data.
If Britain’s final manufacturing PMI reveals activity in the sector continued to contract due to the coronavirus, Sterling will slide.
However, the Rand could surrender earlier gains following the release of consumer confidence data.
If South Africa’s consumer confidence plummets further than forecast, the Pound South African Rand (GBP/ZAR) exchange rate will be left muted.