Euro to South African Rand (EUR/ZAR) Exchange Rate Drops on Fresh Italian Service Sector Contraction

Euro South African Rand (EUR/ZAR) Exchange Rate Falls on Weak Eurozone Services PMIs

As both the Italian and French service sectors underperformed in January the Euro to South African Rand (EUR/ZAR) exchange rate came under fresh pressure this morning.

The unexpected contraction of the Italian services PMI proved particularly concerning, with the reading of 49.7 suggesting that the sector is failing to recover its lost momentum.

With the Italian economy looking at risk of remaining in a state of recession in the first quarter of 2019 the mood towards the Euro (EUR) naturally deteriorated.

Coupled with the underwhelming French services PMI this exacerbated market worries over the outlook of the wider Eurozone economy, which looks on track to slow further in the months ahead.

A sharp contraction in Eurozone retail sales for December added to the bearish mood of EUR exchange rates today.

Improved South African PMI Encourages South African Rand (ZAR) Gains

South Africa’s standard bank PMI, meanwhile, offered a modest boost to the South African Rand (ZAR) as the private sector moved closer to a state of expansion.

While the PMI remained below the neutral baseline of 50 the figure still saw a solid improvement on the month, strengthening from 49.0 to 49.6.

This suggests that the South African economy is moving in the right direction at the start of 2019, bolstering hopes that the sector could soon return to growth territory.

Even though worries over the global growth outlook continue to hang over markets this was not enough to prevent ZAR exchange rates rallying on the back of the data.

Euro (EUR) Vulnerable Ahead of European Central Bank Economic Bulletin

The EUR/ZAR exchange rate could lose further ground if the latest European Central Bank (ECB) Economic Bulletin proves dovish on Thursday.

Signs of increasing caution over the economic outlook could weigh heavily on the single currency, with the odds of a 2019 ECB interest rate hike already limited.

If the ECB looks set to leave monetary policy on hold for longer, driven by worries over slowing Eurozone growth, this may drive a fresh round of Euro selling.

Any signs of weakness in German industrial production and factory orders data for December could also drag the EUR/ZAR exchange rate lower in the coming days.

Weaker South African Business Confidence May Dent ZAR Exchange Rates

However, January’s South African business confidence index is forecast to show a slight decline on the month.

As the health of the South African economy still appears somewhat fragile a deterioration in business confidence could encourage ZAR exchange rates to trend lower.

The general sense of market risk appetite may also offer a boost to the EUR/ZAR exchange rate this week if investor confidence weakens.

Worries over the ongoing US-China trade spat could dent the appeal of the risk-sensitive South African Rand, with the dispute already weighing on the global growth outlook.

Unless there are signs of progress towards a resolution of trade tensions the EUR/ZAR exchange rate is likely to benefit.

Hannah Wilson

Contact Hannah Wilson