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Euro South African Rand (EUR/ZAR) Exchange Rate Slides on Easing Coronavirus Fears

EUR/ZAR Exchange Rate Weakened by Coronavirus Optimism

The Euro South African Rand (EUR/ZAR) exchange rate is trending lower today as market risk appetite begins to improve amidst an easing of coronavirus worries.

At the time of writing the EUR/ZAR exchange rate is currently trading at ZAR16.1363, down roughly 0.3% from this morning’s opening rate.

South African Rand (ZAR) Strengthens on Easing Coronavirus Concerns

The South African Rand (ZAR) is accelerating against the Euro (EUR) today as it is swept up in an emerging market rally.

This pick-up in risk-sensitive assets comes as concerns over the coronavirus outbreak in China begin to ebb.

The easing of fears comes as the rate of new infections showed signs of slowing and investors welcomed Beijing’s effort to limit the economic impact of the epidemic.

Further buoying the Rand today was the publication of South Africa’s consumer price index (CPI) which revealed domestic inflation spiked to a seven-month high in January, driven by rising fuel prices.

While the uptick in inflation is unlikely to greatly impact the South African Reserve Bank’s (SARB) outlook on monetary policy, the rise is a welcome uptick amidst some disappointing domestic data in recent weeks.

Euro (EUR) Undermined by Gloomy Outlook for Germany

At the same time, the Euro (EUR) is struggling to find support today amidst growing concerns over the state of the Eurozone’s largest economy.

Economic data from Germany has grown increasing gloomy in recent months, with the latest ZEW survey revealing a sharp drop in economic sentiment in the country amidst concerns that Germany’s economy will be particularly hard hit by the coronavirus outbreak in China.

This has spurred fears that Germany may be on the brink of a recession this year, following a notably soft end to 2019.

Further compounding concerns over Germany has also been a sharp rise of political uncertainty in the country after the sudden resignation of Annegret Kramp-Karrenbauer’s as leader of the ruling CDU has raised questions over the succession of Angela Merkel.

Carsten Brzeski, Chief Economist at ING Germany, comments

‘The orderly transition of German politics into the post-Merkel era seems to be failing. The country will continue to face a more fragmented political landscape, with parties having to rethink past red lines and potential coalition partners.

‘In our view, the risk of an imminent end of the government is small, however, after Germany’s EU presidency and the CDU’s party leadership vote, the risk of snap elections in early 2021 has increased.’

As a major engine of growth in the Eurozone a slump in Germany’s economy in 2020 is likely to have widespread ramifications for the bloc as a whole.

EUR/ZAR Exchange Rate Forecast: Dovish ECB Minutes to Weigh on the Euro?

Looking ahead, the Euro South African Rand (EUR/ZAR) exchange rate may extend its downtrend on Thursday, with the release of the minutes from the European Central Bank’s (ECB) most recent policy meeting in focus.

We expect to see the single currency weaken if policymakers at the bank should express concern about the slowing of growth in the Eurozone economy, especially if they signal a willingness to ease its monetary policy further.

Meanwhile, movement in the Rand through the second half of the week is likely to be dictated by coronavirus developments, with ZAR exchange rates potentially facing pressure if headlines begin to spook investors once more.