The Pound Sterling to South African Rand (GBP/ZAR) exchange rate continued to advance on Thursday and strengthened by more than 1% due to worries over a possible credit rating downgrade for the South African economy. The Pound Sterling to Euro (GBP/EUR) exchange rate fell to 1.35, its lowest level since the May 7 UK general election.
The Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Hit A Session High Of 19.1190
Concerns over the Greek situation weakened demand for riskier assets such as the South African Rand, and worries over a possible credit rating downgrade by Fitch added to the weakness of the currency. Against the US Dollar, the currency fell to its lowest level in 11-weeks. Against the Euro it tumbled by more than 1.40% to its lowest-level since January.
‘Mounting fears that South Africa could be downgraded by Fitch later in the week helps explain the Rand’s relative under-performance. We believe the weakening bias will continue today as participants eagerly await the outcome of tomorrow’s US employment report and the Fitch review,’ said Barclays Africa in a note to clients.
Earlier in the week, Barclay’s said that it is marginally more likely than not that Fitch will affirm South Africa’s credit rating at BBB with a negative outlook. While a negative outlook does not always mean ratings will be downgraded, it does mean that the probability of such happening is higher than when the outlook is stable.
The US data due later in the session could be a major drag on the Rand, as a positive report will increase speculation that the Federal Reserve will hike interest rates in September.
A strong data release will see the Rand make further losses against the Pound Sterling and Euro exchange rates as well as the US Dollar.
Also weighing on the South African Rand are ongoing concerns over the situation in Greece.
After a deal was rejected by the Greek government on Wednesday night, economists are favouring safer assets to riskier ones. Friday is the deadline for Greece to repay €300 million to the International Monetary Fund, if no deal is reached by then it is likely that Athens will default on the payment.
The Pound Sterling to Euro (GBP/EUR) Exchange Rate Fell to a Session Low Of 1.3542
Despite the worries the Euro managed to make strong gains against its major peers as it found support by improved Eurozone Retail PMI data and the European Central Bank’s improved inflation forecasts.
Attention will now turn to the Bank of England’s (BoE) latest interest rate decision due later in the session.