Sat Sep 23 16:24:48 CAT 2017

Rand fails to keep up with euro’s gains

By Karl Gernetzky | 2017-09-07 16:38:35.0

The rand retained its softer bias against major currencies on Thursday afternoon‚ but was off its weakest levels after the European Central Bank (ECB) revised economic growth forecasts upward‚ and inflation downward.

ECB president Mario Draghi said the eurozone monetary stimulus would not be tapered yet. The bank also cut its inflation projections for 2018 and 2019 to 1.2% and 1.5%‚ respectively‚ compared with earlier forecasts for 1.3% and 1.6%.

Draghi underlined the degree to which the economic recovery in the eurozone was reliant on continued stimulus‚ noting that policy makers agreed on the need for “a continued very substantial degree of monetary accommodation”‚ reported Dow Jones Newswires.

Draghi also expressed concern over the strength of the euro‚ but tempered these comments by saying that “inflation will eventually converge‚ based on the good condition of the economy”‚ the newswire said.

The euro‚ which the rand usually tracks‚ had gained 1% to the greenback shortly after Draghi’s comments. Relatively higher inflation tends to weaken currencies over the long term‚ due to the erosion of value.

At 3.30pm‚ the rand was at R12.8298 to the dollar from R12.7887‚ at R15.4239 to the euro from R15.2407 and at R16.8079 from R16.6778 to the pound.

The euro was at $1.2023 from $1.1918.

The euro has gained about 12% to the greenback so far in 2017‚ with plans from US policy makers to tighten monetary policy held back by a failure of inflation to pick up in the world’s largest economy.

Local data was disappointing on Thursday‚ with both mining production numbers and manufacturing data for July coming in weaker than expected.

In the US‚ an agreement between President Donald Trump and the Democrats to push out the debt ceiling was a relief for all markets‚ although not much reaction had been seen yet‚ Rand Merchant Bank analyst John Cairns said.

 

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