Pound South African Rand (GBP/ZAR) Exchange Rate Benefits as SA Budget Optimism Fades
As the initial bout of market reaction to the South African budget speech faded the Pound Sterling to South African Rand (GBP/ZAR) exchange rate recovered some of its lost ground.
With the South African Rand (ZAR) unwinding some of Wednesday’s major gains the impact of January’s South African producer price index data proved limited.
Although signs pointed towards a fresh uptick in inflationary pressure this was overshadowed by the resurgence in Covid-19 anxiety.
Given that the global economy looks at increasing risk of a slowdown in the face of the continuing spread of the virus support for the risk-sensitive Rand naturally diminished.
A global slowdown could also derail the South African government’s plans to shore up the domestic economy, leaving ZAR exchange rates vulnerable to further selling pressure.
Resurgent No-Deal Brexit Fears Weigh Heavily on GBP Exchange Rates
Even so, the mood towards Pound Sterling (GBP) largely soured on Thursday morning as the UK government doubled down on its belligerent Brexit strategy.
As the government finally outlined its negotiating objects for the upcoming talks with the EU this prompted a fresh wave of anxiety among investors.
With Boris Johnson expressing a willingness to completely walk away from talks as soon as June GBP exchange rates saw a sharp decline.
However, the relative softness of the South African Rand was enough to prevent the GBP/ZAR exchange rate from experiencing any significant slip.
Growing fears over the possibility of the Brexit transition period ending without any fresh UK-EU trade deal in place could keep the Pound under pressure for the foreseeable future.
If Friday’s UK GfK consumer confidence index can pick up on the month as forecast, though, this may help to limit the risk of a GBP/ZAR exchange rate slump in the near term.
Drop in Private Sector Credit Growth May Fuel South African Rand Selling
The South African Rand could fall further out of favour on the back of January’s private sector credit report, however.
Forecasts point towards a further weakening of lending to the private sector at the start of 2020, underling existing worries over the health of the economic outlook.
As long as evidence continues to suggest a sustained bout of weakness within the South African economy support for ZAR exchange rates is likely to diminish further.
A sharp decline in the M3 money supply reading for January could also weigh heavily on the Rand ahead of the weekend.
With the risk of another potential South African credit ratings downgrade on the horizon any signs of economic weakness could see the Rand trending sharply lower across the board.
On the other hand, if market risk appetite shows signs of recovering in the days ahead this could see the GBP/ZAR exchange rate shedding fresh ground.
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