Pound to rand history and analysis: buy or sell GBP/ZAR pair
11:17, 9 April 2020
The pound against rand is an ‘exotic’ currency pair which can provide the potential for high volatility and significant gains for an experienced trader. In this pairing, GBP to ZAR, the GBP is considered the base currency and the ZAR the quote currency. At current prices the pair is trading at 22.82, meaning that one GBP will buy 22.82 ZAR.
GBP/ZAR latest forex analysis
This is very close to a record high in GBP/ZAR exchange rate history. While the entire world is suffering from the financial impacts of coronavirus, emerging economy currencies like the South African rand will be more substantially affected than fully developed countries.
This is because they are considered riskier investments and in times of volatility risk premium increases and investors flock to safe haven currencies.
As visible from the pound to rand graph, the ZAR was already faltering at the beginning of 2020. The pound rand exchange rate graph shows a steady decline since starting the year at around 18.5 per GBP and there is likely to be, at least in the short to medium term, continued deterioration in the value of the rand.
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GBP to ZAR price chart 2020
At the current price the rand has lost almost 24 per cent relative to the pound since the start of 2020. When you consider that the GBP has also decreased significantly relative to the USD this translates to no less than an absolute obliteration of an already floundering rand.
Pound to Rand history
Similar to other times of economic crisis the South African government has yet to tap into foreign currency reserves to prop up the rand. This could be due to foresight – the thought that there is worse to come – but in most analysts’ opinion it has more to do with political infighting and corruption than any other factor.
Over the last 52-week period the GBP/ZAR exchange rate has been as low as 17.14 rand to the pound (July 31, 2019) and is currently at its highest point of 22.8.
As the global economy stabilises and investors risk premium decreases, South Africa will likely not benefit initially because of pre-coronavirus concerns over the viability of the economy.
Pound to rand history also shows that investors will begin to move towards the GBP from safe haven currencies, like US dollars and Swiss francs, before they begin to shift towards more risky currencies like the rand after times of economic shock. This will put upward pressure on the pound and further decrease the value of the rand relative to the pound.
Key drivers for the GBP/ZAR performance
The ability of the South African and British economies to recover from the devastation of coronavirus is intricately linked to the overall global recovery. While South Africa is a commodity and export-based economy, likewise a large portion of UK companies operate internationally.
The UK is a considerably more diversified economy with a high percentage of technology and service-oriented companies which will allow it to recover much more quickly than South Africa. British pound to rand history during times of financial crisis shows that in previous events the pound has recovered more quickly than the rand.
South African debt was recently downgraded by two major ratings agencies and the rand has faced significant downward pressure since. South African bonds were downgraded to junk status by Moody’s and BB (from BB+) by Fitch over the course of the last two weeks.
This means that South African government bonds will now not qualify for listing on the FTSE World Government Bond Index in the next evaluation. This will have a snowball effect on the decreasing value of the rand as it will trigger a major sell-off of government debt.
As most bonds are held in rand, investors will rush to exchange their sales to other currencies in order to take their money out of the country. This will increase supply pressure on the rand and continue to decrease the value relative to the GBP.
GBP/ZAR: Buy or Sell?
Even with the announcement of a dismal economic forecast for the UK in the coming year and Boris Johnson being admitted to the ICU for treatment of coronavirus the GBP has continued to increase in value relative to ZAR.
This is an indication that investors feel the fallout from the South African debt rating decreases has not peaked and that South Africa will face a more substantial fallout from the coronavirus than the UK.
South Africa was already heading for a recession prior to coronavirus. As the government is forced to implement further policies to limit the spread of the virus the economy will continue to decline. There is also the very real possibility that the population, a large portion already living in poverty, may rally against the government in the face of such an economic shock.
While the UK will not be spared from the negative effects of coronavirus the government is in a much stronger position to provide stimulus and social welfare, allowing for a faster recovery and less devastation among the population.
Pound to Rand history graph (5 years)
At this time there is still some potential for further gains with a falling rand and stable pound. As we near the high in the GBP/ZAR historical exchange rate there is still the prospect for the rand to decrease further.
The currency pair is considered a ‘sell’ as the rand is likely to continue to fall relative to the pound in the short to medium term. Traders should consider the relative illiquidity of the GBP/ZAR currency pair when formulating their individual trading strategy. As an exotic pair there are fewer transaction opportunities than there are for major currency pairs.