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Pound to South African Rand (GBP/ZAR) Exchange Rate Falls as Risk-On Market Mood Drives Demand for ZAR

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GBP/ZAR Exchange Rate Falls as Risk Sentiment Improves

The Pound to South African Rand (GBP/ZAR) exchange rate fell by -0.3% today, with the pairing currently fluctuating around R21.38.

The South African Rand (ZAR) benefited from today’s publication of the latest South African GDP data for the fourth quarter, which beat forecasts and rose by 6.3%.

Analysts at Reuters commented:

‘South Africa’s gross domestic product grew quarter on quarter in the three months ending in December, led by expansion in manufacturing, construction and trade, but the economy recorded its biggest annual contraction in seven decades in 2020.’

As a result, ZAR investors are remaining generally cautious about the outlook for South Africa’s economy, which is one of the worst-hit by the Covid-19 pandemic.

However, the risk-sensitive ZAR has benefited from improving confidence in the global economy, which has buoyed demand for riskier assets.

The success of US President Joe Biden’s whopping $1.9 trillion stimulus plan for the American economy has also buoyed the ZAR/GBP exchange rate today.

Pound (GBP) Falls Despite Rising Confidence in UK Economy

The Pound fell against the stronger South African Rand today despite growing confidence in the outlook for the UK economy.

Both Covid-19 infections and vaccinations have shown a significant improvement over the last few days, with vaccinations currently at 33.5% of the population.

As a result, GBP investors are more hopeful about the imminent reopening of the UK economy in the months ahead.

 The UK is now expected to rise by 5.1%, faster than the previous 4.2% forecast last December, according to the OECD.

Sophie Griffiths, market analyst at OANDA, commented:

‘Vaccine rollouts are keeping up pace, particularly in the UK and US, and economic reopening is going well so far. Conviction of a strong economic recovery is boosting risk sentiment and driving demand for riskier assets such as equities.’

In UK economic news, today’s release of the BRC’s retail sales figure beat forecasts and rose by 9.5% despite the nation’s lockdown.

Helen Dickinson, CEO at the British Retail Consortium, said of the figure:

‘While the uptick in sales is encouraging, many retailers are concerned about the months ahead. Many retail businesses will be hoping that customers will return to shops, and have spent hundreds of millions on making their premises Covid-secure, but previous reopenings have shown that demand can be slow to come back. Government has a vital role to play in building up consumer confidence across the country to power the spending-led recovery.’

GBP/ZAR Exchange Rate Forecast: Could Improving Risk Sentiment Continue to Drive-Up the South African Rand?

Pound (GBP) traders will be awaiting Thursday’s release of the UK RICS Housing Price Balance figure. If this points to a marked improvement in the UK economy, however, then the GBP/ZAR exchange rate would head higher.

Covid-19 developments and speculation over the UK’s easing of lockdown measures in the next few months will however continue to drive the Pound.

Any signs of rising confidence in the UK economy would therefore prove GBP-positive.

The GBP/ZAR exchange rate could continue to fall, however, if risk sentiment continues to improve, driving up the risk-sensitive ZAR.

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