EUR/ZAR Exchange Rate Sinks as South African Rand Benefits from US Fed Rate Cut
The Euro South African Rand (EUR/ZAR) exchange rate fell by -0.7% today, with the pairing currently trading around R17.083 as risk-sentiment improves after the US Federal Reserve announced its emergency interest rate cut in response to fears of the global coronavirus outbreak.
Analysts at Reuters commented:
‘While the Fed move set off some big inflows into emerging markets as the [US Dollar] took a knock to hover near five-month lows, early morning moves in risk assets were more muted as investors tried to digest the ongoing impact of the coronavirus.’
The South African Rand (ZAR) has managed to cling on to some of yesterday’s gains as the Fed’s emergency rate decisions sent a signal to other major banks, with the Bank of Canada (BoC) and the European Central Bank (ECB) now more likely to follow suit.
Warwick Butler, Standard Bank’s Chief Trader, recommended caution, however, commenting:
‘The actions taken by central banks shows their hand, and they are worried. We should be too, then. It’s expensive but I feel you have to remain defensive as far as owning risky assets is concerned.’
EUR/ZAR Exchange Rate Sinks as Recession Fears Grow for German Economy
The Euro (EUR) slipped against the South African Rand (ZAR) following today’s release of February’s German Markit Services PMI, which dipped from 53.3 to 52.5, adding to fears of a near-term recession for the Eurozone’s largest economy.
Phil Smith, Principal Economist at IHS Markit, commented on the report:
‘Though the February data revealed a clear and immediate impact from the outbreak of coronavirus in China on foreign client demand, the domestic market had looked to be holding firm, helping the service sector achieve further – albeit slower – growth. But given the spread of Covid-19 to many other parts of the world including Germany – and the subsequent financial market reaction, it would seem that this domestic resilience is about to be broken.’
The EUR/ZAR has also continued to struggle after the US Federal Reserve cut its interest rates in an emergency measure to protect its economy from the global outbreak of COVID-19.
As a result, Euro investors have become increasingly jittery over the rising prospects of an interest rate cut from the European Central Bank (ECB).
EUR/ZAR Forecast: South African Rand Could Rise on Positive Business Confidence Report
South African Rand (ZAR) investors will be awaiting Thursday’s publication of South Africa’s business confidence index for February. Any signs of improvement in South Africa’s business morale would boost the ZAR/EUR exchange rate.
The Euro (EUR) will remain sensitive to coronavirus developments this week. If the global outbreak continues to grow we could see the Euro fall on heightened fears that the European Central Bank could go ahead with stimulus measures.