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Euro South African Rand (GBP/ZAR) Exchange Rate Muted as German Optimism Dwindles

Euro South African Rand (EUR/ZAR) Exchange Rate Left Flat as German Consumer Confidence gfk Slides to Three-Year Low

The Euro South African Rand (GBP/ZAR) exchange rate was left flat today, with the pairing currently trading at around R16.2680.

The Euro (EUR) was left under pressure on Friday as data showing German consumer behaviour revealed a slump in confidence.

The German Consumer Confidence Gfk fell to 9.6 in November, the lowest reading since November 2016, as Brexit and trade woes have contributed towards a recession in Germany’s manufacturing sector.

Representing one of the Eurozone’s largest economies, Germany is also forecast to fall into a recession in the third quarter as it has mainly been dependent on consumption and state spending to buoy growth.

In a statement, GfK researcher Rolf Buerkl said:

‘These events have dampened the mood of consumers again and optimism is dwindling.

‘Nevertheless, private consumption will remain an important pillar for the German economy this year – assuming that the current crises do not escalate further and both policy and the economy counter the rising fear of job losses.’

South African Rand (ZAR) Muted Ahead of Mboweni Economic Plan

The South African Rand (ZAR) was left flat against the Euro at the end of the week’s session as next week’s medium-term budget speech from Finance Minister, Tito Mboweni and Moody’s rating review left the currency rangebound.

Commenting on today’s movement of the Rand, treasury partner at Peregrine Treasury Solutions, Bianca Botes said:

‘The Rand remains in tight range as we head into the end of the week, with little global fallout witnessed during the course of this week.’

However, next week’s rating review is likely to leave the currency under pressure, despite predictions that a South Africa credit downgrade is unlikely.

Commenting on this, chief trader at Standard Bank, Warrick Butler said in a note:

‘A downgrade by Moody’s, which is considered highly unlikely by most commentators, will push the Rand back into the 15-area and maybe even 16 depending on market positioning, while another stay and an acceptable MTBPS and we should see 14.35 or even 14.20 swiftly afterwards.’

Euro (EUR) Left Flat as ECB Bids Farewell to Draghi

On Thursday, as the bank said farewell to outgoing President Mario Draghi, the European Central Bank (ECB) left its monetary policy unchanged.

But, the central bank did leave the door open to further stimulus and a downbeat Draghi offered his assessment of the Eurozone economy in his last press conference following the decision, stating:

‘The risks surrounding the Euro area growth outlook remain on the downside.

‘In particular, these risks pertain to the prolonged presence of uncertainties related to geopolitical factors, rising protectionism, and vulnerabilities in emerging markets.’

The single currency was likely left under pressure as economist predictions suggest the bank will not raise rates until late 2022.

New ECB chief, Christine Lagarde is set to inherit the bank’s expansionist stance along with the divisions between policymakers over the current monetary policy.

When questioned if he had any advice for his successor, Draghi said:

‘I have no advice for Christine. She knows better than anyone else what to do and what to say.’

Euro South African Rand (EUR/ZAR) Outlook: Will Moody’s Rating Review Weigh on ZAR?

Looking ahead, the South African Rand will likely remain under pressure ahead of next week’s credit rating review and budget speech.

While the agency is predicted to avoid downgrading the status of the Rand, if Finance Minister, Tito Mboweni focuses on the issues with state-owned Eskom, ZAR could edge down against the Euro.

Meanwhile, Brexit is likely to continue to weigh on the single currency as the UK awaits the decision of the European Union as to whether Article 50 will be extended.

If the EU grants the UK a three-month extension it will likely cause further Brexit uncertainty as Boris Johnson is likely to push for a general election, which could send the Euro lower.