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Euro South African Rand (EUR/ZAR) Exchange Rate Strengthens as ECB Meeting in Focus

ECB Anticipation Prompts EUR/ZAR to Firm

The Euro South African Rand (EUR/ZAR) exchange rate is trending higher this morning as markets await the European Central Bank’s (ECB) rate decision on Thursday.

At the time of writing EUR/ZAR is up 0.66% from its opening levels this morning, with the pairing easily reversing yesterday’s losses.

Euro (EUR) Strengthens in run up to ECB Rate Decision

The Euro continues to firm against the South African Rand today in advance of the ECB’s latest rate decision tomorrow.

With the ECB expected to err on the side of caution and leave its monetary policy unchanged this month, the focus for markets is likely to be on language of its accompanying statement.

Investors will be particularly interested to learn whether the bank is likely to drop its easing bias on quantitative easing, with the Euro likely to rise should the bank remove its stipulation that its asset purchases could rise again in the future.

This would signal that the ECB is finally ready to wind down its sizeable stimulus programme for good and would open the possible of the bank hiking interest rates in the foreseeable future.

South African Rand (ZAR) Forecast to Slide as Ramaphosa Euphoria Fades

Meanwhile after brief punching higher on yesterday’s better than expected GDP figures, the South African Rand is trending lower again this morning as investors fear that the currency may have been overbought in recent weeks.

The Rand rocketed higher in February as currency markets welcomed the ousting of former President Jacob Zuma and his replacement with his deputy Cyril Ramaphosa.

Ramaphosa had a particularly positive impact on ZAR on hopes that his presidency will rout out corruption and implement much needed reforms.

However the Rand is now beginning to run out of steam as investor raise doubts over how much the Ramaphosa can achieve, particularly given the uphill battle he will face in implementing his reforms.

A recent Reuters poll suggests that this fading euphoria, alongside a bout of profit taking could see the South African Rand trade up to 4% lower over the coming year.

Christopher Shiells, emerging market strategist at Informa Global Markets said;

‘We see any rallies in the rand being met by profit taking and scepticism that President Ramaphosa can transform the economy.’

EUR/ZAR Forecast: Rebound in German Factory Output to Bolster the Euro?

Looking past tomorrow’s ECB meeting the EUR/ZAR exchange rate is likely to strengthen at the end of the week as Germany publishes its latest industrial productions figures.

Economists forecast that Friday’s data will should that factory output rebounded from -0.6% to 0.5% in January, much to the relief of the Euro.

Meanwhile a lull in domestic data until next week could leave the South African Rand to struggle over the next few days, especially if US trade tensions continue to limit risk appetite.