The Euro to South African Rand exchange rate plummeted on Wednesday afternoon as a leaked EU report warned that Brexit could potentially damage the remaining 27 members of the union if a ‘workable’ deal is not agreed upon.
EUR ZAR currently sits around 14.43 following the report, down from 14.58 earlier this morning and close to where it started the week’s session.
Euro (EUR) Weakened by EU Report
The Euro (EUR) tumbled following the release of the report as it suggested that the EU’s position in Brexit negotiations would not be as strong as first though.
The paper, drawn up by the EU’s committee on economic and monetary affairs (ECON) maintains that it critical for the City of London to be protected in negotiations or the rest of the union will suffer economically.
With the UK’s financial sector managing around 40% of EU assets and 60% of capital market business from the continent, the paper warns that members could face dire consequences if an amicable deal is not struck with the UK, reading;
‘A badly designed final deal would damage both the UK and the other 27 EU member states. The exclusion of the main European financial centre from the internal market could have consequences in terms of jobs and growth in the EU.’
The report also appeared to dispel a lot of the recent rhetoric from the more outspoken EU leaders who have sought to punish the UK for leaving the EU in order to dissuade the exodus of more members.
Upbeat Manufacturing PMI Strengthens South African Rand (ZAR)
Confidence in the South African Rand (ZAR) was bolstered today following the release of the latest domestic Manufacturing report.
Figures show that manufacturing activity shot up in January, rising from 46.7 to 50.9 and reaching its highest levels since last July. The Bureau for Economic Research (BER) who compiled the report also released an accompanying statement;
‘This was the first time since July 2016 that the index edged above the neutral 50-point mark, suggesting that the manufacturing sector started the year on a relatively solid footing.’
The rise was partly attributed to an uptick in exports as increased global demand helped factories start 2017 in a stronger position than last year, with expectations that improvements in the agriculture sector could continue to strengthen domestic demand.
EUR/ZAR Exchange Rate Forecast: Draghi to Speak at Ljubljana
The EUR ZAR exchange rate may mount a recovery tomorrow afternoon as European Central Bank President Mario Draghi makes a speech in Ljubljana. Investors are hoping that Draghi will mention the possibility of tapering the Bank’s quantitative easing programme following the dramatic rise in the Eurozone inflation rate in this week’s data.
Meanwhile the South African Rand may fall back once again if rumours that President Jacob Zuma is planning to reshuffle his cabinet persist. Markets fear that the potential reshuffle could oust the widely respected Pravin Gordhan from his post as finance minister, following months of infighting between him and Zuma.