Euro to South African Rand (EUR/ZAR) Exchange Rate Recovers Weekly Losses despite Eurozone Growth Slowdown and ECB Jitters

Euro to South African Rand (EUR/ZAR) Exchange Rate Jumps on South African Budget Disappointment

The South African Rand (ZAR) was one of Wednesday’s biggest losers among major currencies, as South Africa’s latest budget presentation proved concerning for investors.

This allowed the Euro to South African Rand (EUR/ZAR) exchange rate to recover from its recent losses.

On Wednesday, EUR/ZAR jumped from a two-month-low of 16.14 and gained over half a Rand. EUR/ZAR is currently trending near its best levels all week.

This is despite this week’s Eurozone data being generally disappointing. In fact, Wednesday’s Eurozone PMI projections from Markit generally indicated that the Eurozone’s growth outlook was weaker than economists expected.

With trade war fears and Italian politics causing anxiety across the Eurozone, analysts are concerned that the European Central Bank (ECB) could become more dovish. This has limited the Euro’s (EUR) strength in recent sessions.

Euro (EUR) Exchange Rate Strength Limited as PMI Projections Fall Short

Both economic and political factors are weighing on the Euro (EUR) this week. As concerns persist about tensions between Italy and the EU, the Eurozone’s latest PMI projections have also concerned investors.

On Wednesday, Markit published its October PMI projections for the bloc and most key prints fell short of expectations.

German manufacturing fell from 53.7 to 52.3 rather than the forecast 53.4. Overall, Germany’s private sector growth slowed to its lowest level in over three years.

Furthermore the Eurozone’s composite figures missed forecasts in every major print. Services printed at 53.3, manufacturing at just 52.1 and the composite figure at 52.7.

Markit expects these results will not do much to persuade the ECB to tighten monetary policy any time soon. According to Chris Williamson, Markit’s Chief Economist:

‘The survey will make for uncomfortable reading at the ECB. Although the survey’s price gauges remain elevated and close to seven-year highs, the headline PMI has fallen to a level that would historically be consistent with a bias towards loosening monetary policy in order to prevent any further deterioration of economic growth.’

South African Rand (ZAR) Exchange Rates Plummet as South Africa Budget Misses Targets

South Africa’s economic woes escalated this week too, as the nation’s latest budget presentation revealed that government debt would peak two years later than previously forecast – and higher.

South Africa’s recently appointed Finance Minister, Tito Mboweni, downgraded the nation’s growth outlook.

While the budget speech was expected to be fairly downbeat, the news was still disappointing for South African Rand (ZAR) investors and the currency ended up being one of this week’s worst performers.

It also made investors more concerned about South Africa’s credit rating outlook.

Credit ratings agency Moody’s is the only one of the three major ratings agencies to still give South Africa an investment grade, but economists fear the nation could be downgraded during the next review.

Euro to South African Rand (EUR/ZAR) Investors Anticipate European Central Bank Meeting and Eurozone Confidence Figures

For much of today’s session, Euro (EUR) investors will be digesting the European Central Bank’s (ECB) latest policy decision.

The bank is not expected to make any changes to core monetary policy during its October meeting, but any change in tone the bank makes about its policy outlook in reaction to political or trade uncertainties could be influential.

Economists are concerned that Eurozone economic activity has been dented by global trade war fears. If the Eurozone’s growth has slowed too much, the ECB may be pressured to take a more dovish stance on monetary policy.

If the bank indicates that it will not hike Eurozone interest rates until the end of 2019 or even later, or if it delays its plans to unwind the quantitative easing (QE) scheme, the Euro could be in for some major losses.

However, the South African Rand (ZAR) may be in for further losses too.

Any news from Moody’s on South Africa’s credit rating could influence ZAR movement. If Moody’s decides to keep the credit rating frozen rather than cutting it, the Rand could recover.

German and French consumer confidence data, due for publication on Friday, could also influence the Euro to South African Rand (EUR/ZAR) exchange rate before markets close for the week.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard