Euro South African Rand (EUR/ZAR) Exchange Rate Tumbles as Eurozone Inflation Disappoints

Eurozone Inflation Continues to fall – Euro South African Rand (EUR/ZAR) Exchange Rate Suffers

The Euro South African Rand (EUR/ZAR) exchange rate fell on Wednesday as investors responded to another drop in Eurozone consumer price inflation.

According to Eurostat, consumer prices rose by 1.2% in April year-on-year, down from the previous period’s score of 1.3%.

The monthly reading was also poor at 0.3%, down from the previous print of 1.0% but consistent with the forecasts.

Whilst these results were mostly expected, they continued to bode poorly for the European Central Bank (ECB) – which now seems set to extend its bond-buying programme into next year.

This only added to dovish sentiment for the ECB (particularly with a rate hike still firmly off of the table), thus limiting the upward potential of the single currency.

South African Retail Sales Disappoint – South African Rand (ZAR) Remains Resolute

The South African Rand proved resilient against the Euro (ZAR/EUR) today, with the latest retail sales print coming up significantly below expectations.

According to Statistics South Africa, retail sales in the nation increased by 4.8% in March over the same month, previous year, down from the previous score of 4.9% and the forecast of 5.3%.

This rise is still substantial, however, and the ZAR also found slight support thanks to yesterday’s better-than-expected unemployment report which held at 26.7%, rather than rising the forecast 28.0%.

Beyond these releases, global market movements have continued to hold sway over the Rand, with volatility in the US Dollar (USD) kicking it up and down in recent weeks.

South African Inflation in the Spotlight – What can we Expect for the Euro South African Rand (EUR/ZAR) Exchange Rate?

The next big event for the Euro South African Rand (EUR/ZAR) exchange rate will be next Wednesday’s South African inflation report.

Analysts currently estimate that the annual core reading will rise from 4.1% to 4.3%, whilst the headline reading is expected to climb from 3.8% to 5.1%.

The South African Reserve Bank (SARB) currently has an inflation target of 3-6%, but if inflation rises in-line with, or above, forecasts then the Rand could increase in demand.

Indeed, if inflationary pressures persist then SARB policymakers might be eventually be pushed towards raising interest rates to encourage saving and negate the price pressures.

In other news, Goldman Sachs analysts have also predicted that the South African economy will grow by at least 2.4% this year thanks to foreign investment measures by new President Cyril Ramaphosa.

If this estimate is met then the Euro to South African Rand exchange rate could find ongoing support.

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail