Pound to South African Rand Exchange Rate Continues to Weaken on Brexit, UK Growth
Market risk-aversion has been causing South African Rand (ZAR) weakness, but the Pound Sterling to South African Rand (GBP/ZAR) exchange rate still saw notable losses this week. The Pound’s (GBP) losses were one of this week’s most significant forex events, as no-deal Brexit fears revived.
The Pound’s weakness has been among the primary reasons GBP/ZAR has been unable to climb in recent weeks. After opening this week at the level of 22.03, GBP/ZAR held its ground for over half the week before being knocked on Wednesday.
Unable to sustain a recovery, GBP/ZAR instead fell even lower this morning. At the time of writing, GBP/ZAR is trending close to a low of 21.49. This is the worst level for GBP/ZAR since late-July, about a month and a half ago.
Brexit uncertainties are likely to remain in focus for now. However, key news including Bank of England (BoE) and South African Reserve Bank (SARB) news may also prove highly influential next week.
Pound (GBP) Exchange Rates Kept Under Pressure as UK Growth Fails to Impress
Revived no-deal Brexit fears have been the biggest focus for Pound investors this week. After days of big losses for the British currency, today’s UK growth rate report didn’t do much to bolster support either.
Britain’s July Gross Domestic Product (GDP) growth rate report fell short of expectations in many key prints. The monthly figure slowed to 6.6% rather than the expected 6.7%, while the 3-month and yearly figures showed deeper than forecast contractions.
While some UK manufacturing and industrial production stats were not as weak as forecasters predicted, the data was not enough to offset growth concerns.
No-deal Brexit fears continue to dominate the Pound’s outlook overall as well. The UK government’s plans to rewrite parts of the Brexit withdrawal agreement continue to see scathing criticism from EU officials and even some Conservative Party backbenchers.
South African Rand (ZAR) Exchange Rates Struggle to Capitalise on Sterling Losses
The Pound’s broad losses have been enough to leave GBP/ZAR lower this week. However, the South African Rand has also seen weakness this week, which has limited GBP/ZAR losses.
A combination of domestic and global factors is keeping the South African Rand pressured. Investors are more hesitant to take risks as Brexit fears return and coronavirus second wave fears intensify.
As the South African Rand is often correlated to risk and emerging market sentiment, the currency has been weaker as investors avoid risks this week.
On top of risk-sentiment though, the latest South African data has not been supportive enough for ZAR.
According to Annabel Bishop, Economist at Investec:
‘South Africa’s weakening economic fundamentals have dragged down the Rand
Concerns over the future of domestic economic growth are also limiting the Rand from gaining fully from positive global financial market sentiment.’
Pound to South African Rand (GBP/ZAR) Exchange Rate Remains Dominated by Sterling
While there will be more key South African data due next week, the Pound to South African Rand exchange rate’s movement is likely to remain dominated by the Pound.
No-deal Brexit fears are now casting a big shadow over the Pound’s outlook. Concerns that 2020 could end with a full split between the UK and EU are only likely to intensify unless there are any positive developments soon.
UK-EU relations and negotiations are likely to remain the biggest focus for GBP/ZAR next week. However, upcoming data and news will be closely watched as well.
Perhaps the biggest news expected next week will be central bank developments. Both the Bank of England (BoE) and South African Reserve Bank (SARB) will hold September policy decisions on Thursday.
If the banks show any shift in tone regarding economic recovery or the coronavirus pandemic, this could have a notable impact on forex markets.
Other key data, including UK and South African retail sales results, could also influence the Pound to South African Rand (GBP/ZAR) exchange rate if the data surprises investors.