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Euro South African Rand (EUR/ZAR) Exchange Rate Falls as Eurozone Inflation Sinks to 17-Month Low

EUR/ZAR Exchange Rate Falls as Eurozone Growth Figures Halve in Second Quarter

The Euro South African Rand (EUR/ZAR) exchange rate fell by -0.3% today, leaving the pairing trading around R15.782.

The Euro (EUR) struggled against the South African Rand (ZAR) following the publication of the Eurozone’s flash year-on-year Consumer Price Index Core figures for July, which fell below consensus from 1.1% to 0.9% – a 17-month low.

Today also saw the Eurozone’s flash growth figures for the second quarter confirm consensus, halving from 0.4% to 0.2% as the bloc’s manufacturing sector continues to face a slump.

This has further heightened fears that the European Central Bank (EBC) could go ahead with stimulus measures in autumn, as growth fears and inflation falling below the central bank’s target of 2% is likely to become a key concern in the near-term.

Jack Allen-Reynolds, a Senior Europe Economist at Capital Economics said:

‘The raft of weak economic data published this morning strengthens the case for the ECB to announce a package of stimulus measures at its next meeting in September. The national data available so far show that the slowdown in the second quarter was broad-based, with growth softening in France, Spain, Austria and Belgium.’

ZAR/EUR Exchange Rate Edges Higher as Markets Seek Out Riskier Assets Ahead of Fed Rate Decision

The South African Rand (ZAR) meanwhile benefited from today’s publication of the SA trade balance figures for June, which rose from 1.70 billion to 4.42 billion.

However, ZAR has mainly benefited from focus being on the US Federal Reserve’s expected interest rate cut today, which has left many traders seeking out riskier assets.

ETM Analytics said in also added in note:

‘There are many in the market questioning why the rand is not blowing off more than it has. Eskom is producing major losses, there are bailouts galore, and the budget deficit is blowing out to 6% or more.’

This indicates that the South African Rand’s gains are not expected to last following the Fed’s announcement today, as economic concerns are likely to quickly return, potentially pulling down the ZAR/EUR exchange rate.

EUR/ZAR Outlook: German Manufacturing PMI Figures in Focus

South African Rand traders will be looking ahead to tomorrow’s release of the SA Total New Vehicle Sales figures for July.

Any signs of improvement could provide some uplift for ZAR.

Euro investors, meanwhile, will be awaiting the publication of the German Markit Manufacturing PMI figures for July.

As these are expected to improve from 43.1 to 45.4, we could likely see the EUR/ZAR exchange rate begin to rise tomorrow.