The Euro to South African Rand (EUR/ZAR) exchange rate has trended between lows of 17.8514 and highs of 18.5747 during the past seven days of volatile trading.
Recently the Euro has been weakened by poor PMIs which show that businesses performed worse-than-expected during January. Meanwhile, South Africa continues to struggle with a devalued currency and the continued legacy of Prime Minister Jacob Zuma’s catastrophic dismissal of his finance minister in December.
Eurozone Business Slowed More-than-Anticipated During January
The Euro is soft today after a slew of Markit PMIs showed that businesses saw a greater-than-expected slowdown in growth during January. Only the French services PMI printed positively, rising more than forecast as the sector contraction ended.
According to Markit Chief Economist Chris Williamson, ‘The cooling in the pace of growth in Euro Area business activity at the start of 2016 is a disappointment but not surprising given the uncertainty caused by the financial market volatility seen so far this year. It would be wrong to get too worried. The survey data are consistent with GDP rising at a steady quarterly rate of 0.3-0.4% at the start of the year.’
In further bad news for the Euro, a survey of professional forecasters puts inflation below 1% for 2016 after a -0.3% downward revision. Respondents to the European Central Bank (ECB) survey believe that inflationary pressures created by previous favourable developments will be dampened by the flood of oil entering the market in the coming year, pushing inflation down to 0.7%. Professional forecasters still see Eurozone GDP at 1.7% this year, while the unemployment rate is predicted to fall by -0.2%.
ZAR/EUR Strong Even as SARB Governor Struggles to Convince of SA Strength
Lesetja Kganyago, Governor of the South African Reserve Bank (SARB), has been struggling to sell South Africa as a viable business environment at the World Economic Forum in Davos, Switzerland. According to Kganyago, investors are repeatedly raising the issue of Prime Minister Jacob Zuma’s reshuffling of the Finance Minister position, after he suddenly fired respected minister Nhlanhla Nene, replacing him with the inexperienced David van Rooyen. Zuma folded under political and economic pressure just four days later, reinstating a previous Finance Minister, Pravin Gordhan. It was widely believed that the original firing of Nene had been an attempt by Zuma to instate a ‘Yes man’ into the position of Finance Minister in order to enable more lavish government spending.
Zuma’s ability and integrity as a leader has been further questioned after he failed to attend a panel on Africa at the World Economic Forum yesterday, widely considered the best opportunity to showcase the continent’s business and investment potential.
Despite recently having its growth forecast slashed from 1.6% to 0.9% and forecasts of a 50% chance South Africa would enter recession during 2016, a Reuter’s poll found that economists were almost unanimous in their belief that the SARB would raise interest rates at the 28
th
of January meeting. Only one of the 31 economists polled expected there to be no change made to the interest rate, while 19 expected an increase of 0.50%, despite increases having been made in 0.25% increments since July 2014.
The Rand is weak overall but has been able to advance against a sliding Euro.
Euro to South African Rand Exchange Rate Forecast: South African Interest Rate in Focus
The result of surveys on Germany’s business climate are due to be published on Monday, while German CPI figures are out on Thursday. SARB makes its next interest rate decision on Thursday and Trade Balance figures follow on Friday. All of these events are liable to have an impact on the EUR/ZAR exchange rate.