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Month and a Half Worst as Brexit Clouds Pound to South African Rand Exchange Rate Outlook

Pound to South African Rand Exchange Rate Fails to Recover despite Fed Jitters

Speculation over this week’s central bank news is keeping the Pound Sterling to South African Rand (GBP/ZAR) exchange rate near its worst levels. Fears over a possible no-deal Brexit continue to cast clouds over the Pound (GBP) outlook.

While the Pound has been recovering against some major rivals, it has been sliding against the Rand (ZAR). GBP/ZAR opened this week at the level of 21.43 and has been trending lower as the Rand advances.

At the time of writing, GBP/ZAR trends near a low of 21.10. This is the worst level for GBP/ZAR since late July, over a month and a half ago. It follows last week’s session, when Pound weakness dragged it lower even against a broadly weak Rand.

Tomorrow could be a key session for both the Pound and the Rand. The Bank of England (BoE) and South African Reserve Bank (SARB) will both hold September policy decisions tomorrow.

Pound (GBP) Exchange Rate Recovery Lacks Drive as UK Inflation Slows

Investors have been attempting to buy the Pound back from its worst levels this week, after last week’s plummets. However, the Pound outlook remains highly weak overall, as fears of a possible no-deal Brexit persist.

Support in the Pound remains mixed during Wednesday’s session. Some investors are buying the British currency from its lows on hopes that the UK government’s hard Brexit plans may not succeed.

Today’s UK inflation report, which beat forecasts in some key prints, also helped the Pound a little.

However, the data also contained factors that concerned investors. Analysts pointed out that deflationary pressures were rising amid the coronavirus pandemic.

According to Christopher Dembik, Head of Macro Analysis at Saxo Bank:

‘In the short-term, inflation will likely stay subdued as the pandemic scars remain. Rising unemployment, which will probably increase much further in coming months as the furlough is coming to an end in October, will push households to cut their spending, thus putting increased downward pressure on prices.’

South African Rand (ZAR) Exchange Rates Benefit from Reserve Bank Uncertainty

The South African Rand has been one of the more appealing major currencies this week. It has been advancing even over the Pound’s own rebound attempts.

It comes amid a rise in demand for riskier assets correlated to emerging markets.

The South African Rand is rebounding from lows more easily as investors speculate that recovery from the coronavirus pandemic will improve, and the Federal Reserve will become more dovish.

According to Bianca Botes, Executive Director at Peregrine Treasury Solutions:

‘D-Day for the Fed interest rate decision has arrived, following a day of global risk-on and a clawback by the Rand,

We can expect some volatility today, especially during the US session this afternoon, with the Rand setting its sights on R16.35/$.’

Pound to South African Rand (GBP/ZAR) Exchange Rate Awaits Central Bank News

South African Rand investors are buying the currency in anticipation of major central bank news expected over the coming day.

The Federal Reserve will hold its September policy decision this evening. If the Fed takes a more dovish tone on the US outlook than expected, the South African Rand could see stronger demand as it benefits from US Dollar losses.

On the other hand, a more optimistic Fed could weigh on the Rand and help GBP/ZAR to recover.

The Pound may be even more likely to recover if tomorrow’s Bank of England (BoE) policy decision is more optimistic than expected. Sterling may only come under deeper pressure if the BoE hints at more monetary policy easing however.

The South African Reserve Bank (SARB) will also hold its September policy decision tomorrow. A dovish bias is expected, so unless the bank’s tone is surprising the Rand may not see much shift in movement.

Of course, potential developments in the Brexit process will continue to influence the Pound to South African Rand (GBP/ZAR) exchange rate outlook as well.

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