US rates outlook erodes rand, JSE
The rand weakened to the lowest level in two weeks on Monday, while the JSE closed weaker as investors considered the implications of a strong US jobs report on the monetary policy outlook.
In an interview with CBS on Sunday, Federal Reserve chair Jerome Powell said that the Fed would be cautious about cutting rates and that there would probably be fewer cuts than the market was pricing in.
Additionally, Powell said the central bank’s policymakers want to see more evidence that inflation is moving “sustainably down to 2%”.
Powell’s comments echoed his remarks from the central bank’s first meeting for the year last week, saying that a March rate cut is unlikely.
“The ongoing knocks to market confidence on early US interest rate cut hopes has negatively affected the rand, and indeed most emerging market currencies,” Investec chief economist Annabel Bishop said.
“Financial markets have been reducing the probability of an early interest rate cut in the US as the year has progressed. This pushing back of the timing of the first occurrence of the US interest rate cuts in the anticipated cycle has had a marked effect on financial market expectations, and so weakened emerging-market currencies across the board.
“Volatility has picked up in the rand on changes in financial market US interest rate expectations. The implied Fed funds futures now show a cut in only June and another in July, seeing currency pairs recalibrate, and additionally causing the dollar to strengthen,” Bishop said.
At 5.36pm, the rand had weakened 0.96% to R19.0475/$, having weakened to an intraday worst of R19.1045/$. It had weakened 0.3% to R20.4505/€ and 0.17% to R23.8836/£. The euro was 0.46% weaker at $1.0736.
Investors also assessed a fresh batch of strong economic data as suggested rates may stay elevated for longer than anticipated. The ISM nonmanufacturing index for January came in at 53.4, higher than the 52 forecasted, according to Reuters.
Investors are also watching for several corporate reports as the earnings season continues to gauge how companies have been doing in high interest rates and geopolitical risk environments.
The JSE all share lost 0.47% to 74,033 points and the top 40 0.53%.
At 5.55pm, the Dow Jones industrial average was 1.08% weaker at 38,237 points, with markets also weaker in Europe.
Gold lost 1.07% to $2,017.65/oz. Platinum was little changed at $893.23/oz. Brent crude was 0.6% weaker at $76.9 a barrel.