The Euro (EUR) to South African Rand (ZAR) exchange rate has dropped considerably this week, falling to its lowest point since May as a surge of risk-sentiment in the foreign exchange market left emerging market currencies like the Rand stronger.
Euro (EUR) Slips Against Strong Risk-On Movement
The Euro has remained relatively sturdy this week due to its close association with the British Pound. New EU Referendum polls released over the weekend have revealed a shift away from the strong ‘Leave’ sentiment seen last week.
With a ‘Brexit’ being touted as potentially harmful to not just the UK economy but the Eurozone as well, the Euro has benefitted from bets that Britain would ‘Remain’ in the EU.
However, widespread demand for the currently risky Pound has supported an increase in risk-sentiment across the board. As a result, the relatively ‘safe’ Euro struggled against its riskier rivals.
ECB Issues New Warnings Ahead of #EURef
The European Central Bank’s (ECB) President Mario Draghi spoke once more earlier this week about the risks ahead for the Eurozone economy.
Draghi piled pressure on the Euro by reminding markets that more easing measures were still on the way, reaffirming his usual stance that other politicians and finance ministers throughout the Eurozone needed to assist in economic recovery.
Market reaction was mixed towards Draghi’s statements that the ECB was prepared to handle a potential ‘Brexit’. While this reassured investors that the ECB had plans in place for all potential outcomes, the prospect of further easing weighed slightly on the Euro’s appeal.
Rand (ZAR) Solid on High Risk Sentiment
The South African Rand has remained relatively strong this week, due to EU Referendum-related risk sentiment increasing the appeal of risky currencies – including emerging market currencies like the Rand.
During Monday’s session, bets that the UK would ‘Brexit’ from the EU softened, causing the currently risky Pound to soar and boosting risk-sentiment. Solid commodity and stock data throughout the week has also improved appeal of risk-correlated currencies.
The Rand may also have gained due to a better-than-expected Gross Domestic Product (GDP) report released on Monday. South African growth improved from 2.9% to 3.5% despite being expected to only improve to 3.1%.
However, the Rand’s gains slowed on Wednesday as investors took profit from this week’s risk-currency highs.
Rand appeal may also have been soured by disappointing inflation figures. The yearly inflation rate slipped from 6.2% to 6.1% despite expectations of improving to 6.4%. The month-on-month score worsened from 0.8% to 0.2%, disappointing forecasts.
EUR/ZAR Forecast: Britain’s EU Referendum to Dictate Currency Movement
The outcome of Thursday’s British EU Referendum is highly likely to influence currency exchange rates around the globe.
If the UK votes to ‘Remain’ in the European Union, the Pound will likely soar and improve investor appetite for risk until movement calms. This could cause the Euro to plummet against the Rand.
On the other hand, a ‘Brexit’ would likely cause the Pound to decline and lead investors to seek out ‘safe-haven’ currencies until markets calm from the shock. This would see the relatively-safe Euro gaining over the Rand.
At the time of writing, the Euro to Rand exchange rate fluctuated flatly in the region of 16.5800.