ZA Recession Fears Send Pound Sterling South African Rand (GBP/ZAR) Exchange Rate Higher
The Pound Sterling South African Rand (GBP/ZAR) exchange rate rallied on Tuesday, leaving the pairing trading at around R19.8300.
The Rand weakened today, ahead of domestic data that is expected to show the country’s economy has fallen into a recession.
The currency retreated after making gains on Monday as central banks hinted at slashing lending rates.
The Chinese, Japanese and US central banks all indicated they would use monetary policy to limit economic damage from Covid-19.
However, these increased hopes were squashed after a Reuters report noted a meeting of G7 finance ministers and central bank governors was unlikely to result in fresh fiscal or monetary promises.
The notes released ahead of today’s meeting did not mention coordinated rate cuts.
Commenting on this, CBA currency analyst Joe Capurso said:
‘We don’t have high expectations that the G7 are going to announce a coordinated policy easing.
‘We see some central banks being reluctant to pull the trigger, like the ECB, for example, and the Bank of Japan, because they just don’t have a lot of room to ease.’
Sterling (GBP) Rebounds Ahead of PM’s Covid-19 ‘Battle Plan’
The Pound (GBP) made significant gains against the South African Rand (ZAR) on Tuesday after falling on Monday as UK-EU trade talks began.
Commenting on this, David Madden, market analyst at CMC Markets said:
‘It’s essentially the same [Brexit] story that’s been going on, but a new chapter.
‘All you need is one negative comment from a government official. The fact that that’s a possibility has dissuaded a large chunk of Sterling buyers.’
Added to this, fears surrounding the economic damage from the coronavirus outbreak sparked a selloff in global markets and sent GBP lower yesterday.
There were signs that Covid-19 had begun to dampen the UK’s post-election bounce after manufacturing data showed factories reported longer delays in supply chains.
However, the Pound rallied against the Rand on Tuesday as Prime Minister Boris Johnson is to publish the government’s ‘battle plan’ to tackle the virus.
In a statement, Johnson said:
‘It is highly likely coronavirus will spread more widely in the coming days and weeks, which is why we’re making every possible preparation.’
Pound South African Rand Outlook: South African Business Confidence in Focus
Looking ahead, the Pound (GBP) could extend its gains against the South African Rand (ZAR) following the release of UK services PMI data.
If February’s PMI data rises higher than expected, Sterling will edge up higher.
However, GBP is likely to continue to make gains ahead of Thursday’s South African confidence data.
If business confidence slumps further than expected, the Pound South African Rand (GBP/ZAR) exchange rate is likely to rise.