South African Rand (ZAR) Exchange Rates Surge as Government Rules out Taking on Eskom Debt
The Euro to South African Rand (EUR/ZAR) exchange rate slumped sharply this morning as worries over South African state power utility Eskom eased.
As Finance Minister Tito Mboweni offered assurances that the South African government will not take on Eskom’s debt, in spite of a planned cash injection, this gave the South African Rand (ZAR) a major boost.
While the future of the utility company still offers investors some cause for concern this news was enough to support stronger ZAR exchange rates today.
Even so, worries over the prospect of rating agency Moody’s downgrading South Africa to junk status could still put the South African Rand under pressure in the days ahead.
With confidence in the outlook of the South African economy limited ZAR exchange rates may struggle to hold onto their bullish trend for long.
German Manufacturing Contraction Drags Euro (EUR) Lower
Confidence in the Euro (EUR) diminished in the wake of February’s raft of Eurozone manufacturing and services PMIs, meanwhile.
While investors anticipated a modest improvement in the German manufacturing PMI the index fell further into contraction territory instead, slumping from 49.7 to 47.6.
The continued sluggishness of the German manufacturing sector gave markets fresh cause for confidence, provoking fears over the strength of the economic outlook.
With the Eurozone’s powerhouse economy still looking vulnerable to slowing growth momentum the mood towards the Euro naturally soured.
Although the service sector fared better in February, showing an improvement across the board, this was not enough to shore up EUR exchange rates today.
Falling German Business Confidence to Weigh on Euro (EUR) Exchange Rates
Further weakness could be in store for the EUR/ZAR exchange rate ahead of the weekend, with the latest German IFO business confidence survey expected to show a deterioration.
Another decline in business sentiment would expose the Euro to fresh selling pressure, as weaker confidence could lead to diminished investment.
With the German economy already showing signs of underwhelming growth any decline in the confidence index may weigh heavily on the Euro on Friday.
Unless businesses show signs of optimism EUR exchange rates look set to remain under pressure.
Confirmation that the German economy stagnated in the fourth quarter should also limit the appeal of the single currency in the near term.
However, the strength of the South African Rand could fade if the general sense of market risk appetite declines.
If market optimism over the prospect of a US-China trade agreement falters this would leave the risk-sensitive Rand biased to the downside.