GBP/ZAR Exchange Rate Falls as South African Rand is Buoyed By Risk-On Markets
The Pound to South African Rand (GBP/ZAR) exchange rate plummeted by 0.9% today, with the pairing currently fluctuating around R21.35.
The South African Rand (ZAR) rose to record highs against today as investor appetite for riskier assets has improved on growing prospects for a quicker-than-expected economic rebound. This follows reports that governments and central banks around the world have unleashed fiscal and monetary stimulus to boost economies hit hard by the coronavirus pandemic.
Bianca Botes, executive director at Peregrine Treasury Solutions, commented:
‘The risk rally witnessed across the board has been fuelled mostly by optimism surrounding an uptick in economic activity around the world, supported by massive stimulus packages.’
Meanwhile, the Rand is also benefiting from South Africa’s easing from level for to level three, which was effective from 1st June. As a result, investors are becoming increasingly confident that South Africa’s economy could make a swift economic recovery.
Pound (GBP) Sinks as UK Economic Outlook Remains Bleak
Sterling fell today after the release of the later UK services PMI for May failed to inspire hopes of the UK’s economic recovery. The figure for May rose only marginally from 27.8 to 29, leaving investors in doubt over an imminent recovery for Britain’s largest economic sector.
Chris Williamson, the chief business economist at IHS Markit, commented:
‘A substantial part of the service sector … continued to be devastated by social distancing measures, and looks set to remain so for some months to come, limiting scope for a v-shaped recovery. The ongoing steep fall in employment remains a particular concern, pointing to a weakened consumer sector but also underscoring heightened risk aversion as companies seek to cut costs in the face of collapsing sales and an uncertain outlook.’
Meanwhile, UK-EU post-Brexit talks have remained in focus. Now that the two powers are negotiating in the fourth leg of negotiations until the end of June, some Sterling traders are hoping No 10 will request an extension to the transition period beyond December this year.
However, today saw Andrew Bailey, the Governor of the Bank of England, warn banks to prepare for the possibility of a no-deal Brexit. Consequently, this has left some Sterling traders jittery on the prospect of a chaotic exit later this year.
GBP/ZAR Outlook: Could the South African Rand Sink as US-China Trade Tensions Flare Up?
The South African Rand (ZAR) will continue to be dictated by risk-sentiment this week. As a result, we could see ZAR tumble is US-China trade tensions flare-up once again.
However, if US-China trade tensions remain eclipsed by ongoing riots throughout the US, we could see ZAR continue to rise as investors seek out riskier assets.
The GBP/ZAR exchange rate could continue to fall this week as Thursday’s UK data is unlikely to provide much uplift for Sterling. Although the UK construction PMI for May is expected to rise from 8.2 to 29.7, this is not likely to buoy optimism in the British economy as it continues to struggle with the fallout of the coronavirus pandemic.