Trading GBP/ZAR

GBP/ZAR is an exotic currency pair that reflects the value of the GBP against the ZAR. The pair contains the official currency of Great Britain, considered one of the world’s top reserve currencies, and the South African rand, a middle-income emerging market. This review breaks down the benefits of trading the GBP/ZAR as well as the risks, along with investing tips, the pair’s history, and how to forecast GBP to ZAR in 2023.

Chart

GBPZAR Chart by TradingView

Pros Of Trading GBP/ZAR

• High-exchange rates – Since 2020, the GBP/ZAR pair has seen serious movement, close to its record high in 2016. Activity has led to high levels of volatility which can be good news for forex traders.
• Diversification – Trading with an exotic FX pair lets users diversify their investment portfolio while utilizing distinct strategies to generate profits.
• High-interest rates – Both GBP and ZAR generally have high-interest rates, which can provide profit potential.

Whilst GBP was once considered a stable currency, the financial crisis in 2008 and Brexit have contributed to an upward trend in rates.

• Resources – Traders nowadays have access to a host of tools that can help inform GBP to ZAR forecasts for today or for next week. Online candlestick charts, live spot and forward rates, plus historical exchange rate data are all available for free at many brokers and providers.

Risks Of Trading GBP/ZAR

• Low liquidity – GBP/ZAR is an exotic pair and as the ZAR component is considered an emerging currency, it carries less liquidity compared to developed market currencies and majors. This means it’s likely to have wider spreads, which will make it more costly to trade.
• Volatility – While volatility can increase rewards, it can also magnify losses. Though GBP to ZAR projections and technical analysis can help inform trends, exact movement is difficult to predict. As a result, it’s key that traders use tools such as stop losses to protect positions.
• Strength – While no currency is free from the effects of the coronavirus, the ZAR was already heading toward a recession before the 2020 pandemic. This may raise the question of when or if the ZAR will recover.
• Algorithmic bots – Nowadays, traders are faced with automated competition from a market dominated by intelligent algorithms.

This can make it difficult for manual traders to buy and sell at the same volume and speed as high-tech bots.

Influences On GBP/ZAR Movement

• Monetary policy – Interest rates affecting the British pound are dictated by the Bank of England. Likewise, the South African Reserve Bank decides whether to raise or lower interest rates in South Africa. Being clued in on economic announcements from both financial institutions can help inform GBP v ZAR trading strategies.
• Economic growth – Understanding economic indicators like employment, inflation and interest rates are useful as the value of a currency depends on the strength of its economy. Follow announcements across both countries for insights into which direction the GBP/ZAR may move.
• Commodity prices – Precious metal exports are integral to South Africa’s economy. It is the largest global producer of gold, platinum, diamonds and iron ore. The volume and value of these commodities will influence the country’s currency and the relative strength of the GBP/ZAR.
• Political stability – South Africa has had a troubled political history. The apartheid, for example, significantly weakened the ZAR. Much of the currency’s volatility stems from its political instability. Likewise, Brexit had a big impact on the value of the pound, which saw its largest drop in value following the announcement of the UK referendum vote.

• Keep abreast of political events across both countries to stay ahead of GBP/ZAR trends.

Correlations

Most currency pairs are linked, with movement in one pair often reflected in another, either positively or negatively:

• Positive correlation – This is when pairs react in line with each other. The GBP/USD, AUD/USD, and EUR/USD are the three most commonly traded pairs and are all positively correlated. This is because USD is the counter currency and any change in the US dollar impacts all pairs.
• Negative correlation – This occurs when currencies move in the opposite direction. The USD/CHF, USD/JPY, and USD/CAD are popular examples. They are negatively correlated because the USD is the base currency.

Application

A GBP/ZAR trader can use this information to validate trends or to build a strategy around majors, for example, which they may understand better. Keeping an eye on the GBP/USD and USD/ZAR is particularly useful when trading the GBP/ZAR.

Of course, it’s worth highlighting that external factors can lead to discrepancies in the standard movement seen in correlated pairs.

GBP/ZAR Day Trading Strategy

Below are some important considerations when forming your GBP/ZAR trading strategy.

Timing

A successful GBP/ZAR strategy will depend on timing.

Ideally, you want to trade when the market offers the greatest volume and volatility so you can generate profits while incurring minimal costs. A live chart or graph will show you that volume and volatility in the GBP/ZAR pair increase between 16:00 GMT to 06:00 GMT the next day.

Brokers

Because GBP/ZAR is an exotic pair, it’s not as widely available as majors, for example.With that in mind, it’s worth checking your forex broker offers the pair.It’s also worth keeping in mind some providers offer lower leverage limits and higher fees on exotics.Look for a broker with the best buying and selling rates alongside generous leverage and competitive pip values.

Oanda is one good option that offers the GBP/ZAR and trusted forex platforms like MT4 and MT5. Other useful resources include Yahoo Finance and Xe.These sources offer live exchange rate forecasts, GBP to ZAR conversions, FX news, historical 5, 10 or 20 years of chart data, plus information on futures.

News

Some investors prefer to trade the GBP/ZAR using news announcements.Major events can help you answer questions like ‘is the ZAR getting stronger or will it weaken?’ A couple of top providers for forex news are Bloomberg and broker IG.

Note, we’d recommend validating outlooks based on news events using technical analysis too.

History Of GBP

The pound sterling is one of the oldest currencies, dating back to 775 AD when silver pennies dominated the Anglo-Saxon period.

Shortly after the establishment of the Bank of England in 1694, pound notes started to circulate. Before the decimal system was introduced in 1971, the pound existed with a pennies and shillings system.

In the same year, the British pound floated freely, allowing market factors to dictate the value of the currency rather than artificial pegs to other currencies. Once a stable currency, the British pound has declined since the financial crisis in 2008. The UK’s referendum vote to leave the EU in 2016 also caused the pound to fall 10% overnight, and the impact of the vote is still being felt today.

History Of ZAR

The South African rand was introduced in 1961 when the country became a republic. At that time, the ZAR was valued at 2 rand to 1 pound. Prior to that, the national currency was the South African pound owing to the country being a British colony.

Until 1968, the South African rand exchanged at 2 rand to 1 pound and fluctuated steadily around 1.4 to 1.7 until 1982. Political pressure against the South African apartheid then weakened the value of the currency. During that period, the FX rate reached more than 2.5 rand to 1 pound, leading to forex activities being suspended to prevent further devaluation.

When the continuation of the apartheid was announced in 1985, the rand continued to weaken. In fact, by the end of the year, it reached over 4 rand to 1 pound and depreciated to over 8 by 1998. And while the ZAR has steadily risen since 2006, high rates of poverty, crime, political unrest, and unemployment still plague the value of the currency.

Role Of GBP

The British Pound sterling is the official currency of the United Kingdom and also the Isle of Man, the South Sandwich Islands, Gibraltar, South Georgia, and the British Antarctic Territory.

It is the fourth most traded currency on the forex market.

The UK’s diverse economy consists of technology and service-oriented companies, manufacturing and agricultural sectors. The country’s financial services industry is one of the largest contributors to GDP.

The British pound is a leading reserve currency and one of the few currencies worth more than the US dollar. With that said, major political events such as Brexit, along with COVID-19, have negatively impacted the value of the currency in recent years. Of course, political instability can also lead to opportunities for GBP/ZAR day traders.

Role Of ZAR

The ZAR is the national currency of the Republic of South Africa and is also recognised as legal tender in the Common Monetary Area of Lesotho, Namibia and Eswatini.

The ZAR is considered a commodity currency due to the country being a major exporter of platinum, gold, diamonds and iron ore. With that said, the country has pivoted to a more services-based economy which in recent years has accounted for 67.5% of the country’s GDP. Following data across South Africa’s precious metals exports and services industries will help inform GBP/ZAR trading decisions.

Final Word On Trading GBP/ZAR

As GBP/ZAR is an exotic pair, it offers forex traders a means of diversifying their investment portfolio. The pair’s volatility and high-interest rates provide opportunities to earn healthy profits. The right strategy will vary between traders but will likely call on GBP/ZAR technical analysis, news events and historical data.

FAQ

See a live chart or go to an exchange rate website to view the current buying and selling rates.