The pound to rand exchange rate rose to record highs after Moody’s pulled the trigger on South Africa. The ratings giants downgraded the country’s credit rating to junk status as I had predicted last week.
When making the announcement, Moody’s said that the current national lockdown added to South Africa’s perennial challenges such as unreliable electricity, low business confidence, and the challenges in the labour market. Other challenges for the country are that the main businesses, including Eskom and South African Airlines are in life support.
A rate cut to junk status means that the country will now find it difficult to raise money in the credit market. It also means that it will start paying more money to service its debt.
The rate cut came on the same day as Fitch Ratings slashed the bond rating of the UK. The company said that the UK faces a myriad of problems ranging from uncertainties of Brexit to reduced output from companies.
South African rand dropped by more than 2% against the US dollar and more than 1.50% against the sterling.
The GBPZAR pair rose to a record high of 22.500 after the ratings downgrade. Looking at the four-hour chart, we see that the pair has been making higher highs since Thursday last week. We also see that the pair has moved back slightly to the previous high level of 22.200. In addition, the momentum and ADX indicators have continued to rise. This is an indication that the pair will likely continue moving in an upward trend. Still, I expect a slight pullback to about 21.996, which is the Friday’s.