The Euro South African Rand (EUR ZAR) exchange rate rose to a new monthly high today as markets reacted to the latest Eurozone CPI data.
Euro (EUR) Bolstered by Upbeat Inflation Figures
The Euro surged higher this morning as data showed that the Eurozone’s Consumer Price Index rose in line with expectations last month.
According to data published by European statistics agency Eurostat, the Eurozone’s CPI figures showed that inflation climbed from 1.3% to 1.5% in August, matching the previous flash estimate and reaching its highest level since April.
With inflation edging slightly closer to the European Central Bank’s (ECB) target rate of 2%, markets are hopeful that today’s data may help to support the possibility of the bank beginning discussions on the winding down of its quantitative easing programme when it next meets in October.
However ECB policymakers still have plenty of reasons to remain dovish on inflation, particularly as much of last month’s jump was prompted by a 4% rise in energy prices, which is historically unstable.
In fact when striped of volatile costs such as energy and food prices, core inflation remained flat at 1.2% last month.
Additionally in its latest Bulletin released earlier today the ECB forecast that inflation could fall below 1% at the start of 2018, with the strong uptick in oil prices at the start of this year likely leading to a downturn in annualised price growth.
South African Rand (ZAR) Weakens on Expectations of Upcoming Rate Cut
Meanwhile the South African Rand was pushed even lower at the start of this week’s session by expectations that the South African Reserve Bank (SARB) will vote to lower interest rates when it meets on Thursday.
Analysts suggest that the increased political uncertainty surrounding the Zuma administration and a possible downgrade in the country’s currency debt rating to junk status is likely to prompt the bank to extend its recent rate cut cycle by another 25 basis-points.
The SARB said in the wake of its previous policy meeting in July;
‘In this highly uncertain environment, future policy decisions will be dependent on data outcomes and our assessment of the balance of risks.’
EUR ZAR Forecast: German Confidence to Rise This Month?
Looking ahead the EUR ZAR exchange rate may climb even further on Tuesday as Germany releases its latest confidence data.
ZEW’s economic sentiment index is expected to have risen from 10 to 12.5 as recent domestic data continues to paint an upbeat economic outlook, while businesses appear to remain largely unfazed by the upcoming general election.
Meanwhile the Rand may attempt to mount a slight recovery on Wednesday ahead of the SARB rate decision as South Africa’s own CPI data is expected to report an uptick in domestic inflation.
Current Interbank Exchange Rates
At the time of writing the EUR ZAR exchange rate was trending around 15.8370 and the ZAR EUR exchange rate was trending around 0.06312.