The South African rand was trading slightly firm at its open on Thursday, as investors were trading with some caution ahead of Jerome Powel’s speech on the day, which would most likely sway investor’s sentiment. Intraday activities, along with comments from Jerome Powel’s speech, saw the local unit breaking out to trade at an almost 5-week high, on the back of a dovish tone from the Fed, a broadly stronger dollar and rising yields. The rand initially reached a low of R14.9900/$ before weakening to a high of R15.3400/$ and ultimately ended the session at R15.2918/$.
The outlook of global monetary policy is most likely to remain on the accommodation path, with the US Federal Reserve Chairman reiterating that their current policy trajectory remains on the right course, keeping an eye on market conditions. Even though EM currencies are continuously being squeezed and hammered by rising yields, a continued accommodation in global monetary policy could see Emerging Markets benefit immensely from a growth perspective.
On the data front today, we have Net Gold & Forex Reserves locally and internationally we have Non-Farm Payroll, along with Employment Rate data from the US, amongst others.
The dollar recovered yesterday to trade higher against risk currencies as Fed Chair Jerome Powell showing little concern for the recent rise in yields gave investors the indication that these could continue rising without severely affecting economic growth, spurring dollar demand towards session end. The Fed is committing to its ultra-easy monetary policy and lower unemployment targets to aid an economic recovery. The dollar index reached a three-month high of 91.669 and ended the session at 91.611.
The euro was, as always, collateral damage in the dollar’s recovery yesterday, trading weaker as poor retail sales data and a lag in the EU’s vaccination rollout put further weight on sentiment. The single currency weakened to $1.1962 towards session end and closed it out at $1.1969.
The pound was moving in line with the dollar for most of the day to test the $1.4000 resistance level again, but quickly came off after Fed Chair Jerome Powell’s speech. The pound is still relatively strong, supported by an efficient vaccine rollout, but faces downside risk if path to economic stability is not maintained. The pound strengthened to $1.4010, quickly dropped to $1.3881, and ended the session at $1.3888.
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