Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Muted on Grim Fed Outlook
The Pound Sterling South African Rand (GBP/ZAR) exchange rate remained flat. This left the pairing trading at around R22.6641.
Thursday saw the South African Rand weaken on the increasing concerns of the coronavirus pandemic on the global economy.
The Rand extended its losses against a handful of currencies after yesterday’s session saw ZAR fall following a grim economic outlook from the US Federal Reserve.
Investors remained cautious as they weighed the prospects of a quick global economic recovery against the risk of a second wave of coronavirus infections.
Fed Governor, Jerome Powell gave a downbeat assessment of the economic outlook for the world’s largest economy.
The closely-watched speech caused traders to flock away from riskier assets and back towards safe-haven currencies such as the US Dollar.
This emphasised the fragility of the South African economy, as it is dependent on trade with and investments from the US, China, and the European Union.
Meanwhile, an announcement from the country’s President, Cyril Ramaphosa failed to spark optimism. The President stated the country would be moving to a phase 3 lockdown and will ease restrictions further.
Pound (GBP) Muted as the UK ‘Already in Freefall’
Sterling remained under pressure this morning, even falling below $1.22 against the US Dollar in early London trading. This was its lowest level in more than five weeks as demand for the safe-haven US Dollar increased.
GBP remained under pressure after Wednesday’s weak economic data which showed the economy contracted by -5.8% in March. This left GBP/ZAR largely flat.
Q1 2020 growth slumped by -2%, the largest fall since the world was in the depths of the financial crisis in late 2008.
Added to this, Sterling suffered losses after British Finance Minister Rishi Sunak said the country was ‘very likely’ in the midst of a recession following the release of UK GDP data.
Speaking after Wednesday’s data release, Britain’s Chancellor said:
‘We have to support people’s jobs, their incomes, livelihoods at this time, and support businesses so we can get through this period of severe disruption and emerge stronger on the other side.’
Commenting on this, Capital Economics’ senior UK economist, Ruth Gregory said the figures showed the country’s economy was ‘already in freefall within two weeks of the lockdown going into effect’.
She also added:
‘With the restrictions in place until mid-May and then only lifted very slightly, April will be far worse.’
Pound South African Rand Outlook: Investors Eye China’s Industrial Production and Retail Sales
Looking ahead, upbeat data from China could offer the South African Rand (ZAR) some support against the Pound (GBP).
Traders will be eagerly awaiting China’s industrial production, retail sales, and investment data. Markets are likely to use this as a gauge to measure how quickly the world’s second-largest economy is recovering after economic expansion contracted for the first time in decades.
If Friday’s data from China is more upbeat than forecast, it will buoy the Rand as the country is dependent on trade from China. This will weigh on the Pound South African Rand (GBP/ZAR) exchange rate.