The Euro to South African Rand (EUR/ZAR) exchange rate weakened on Tuesday as fears over a ‘Grexit’ from the Eurozone damaged sentiment towards the single currency.
The Euro to South African Rand (EUR/ZAR) Exchange Rate Slipped To a Session Low Of 12.9286
The European Central Bank is rumoured to be making contingency plans for a Greek exit from the Eurozone according to a report by CNBC. The rumours suggest that policy makers are preparing plans in for both an orderly exit and disorderly exit. The latest rumours added to speculation that the ECB could cut its support to Greek banks unless some headway is made in negotiations between Athens and its creditors.
According to the CNBC report, a proposal has been created which looks at four possible funding scenarios for Greece. The first scenario is to keep things the way they currently are, another was to go back to the way things were before November last year. The scenarios also look consider a disorderly default and an orderly default.
‘Europe has no choice but to kick Greece out’
Larry Fink, one of the world’s most powerful investor’s, believes that Greece will be forced out of the Eurozone.
‘If Greece does not capitulate, Europe has no choice but to kick Greece out. The Europeans have no choice but to be firm. The outcome of Greece unwilling to meet its obligation is very negative for Greek citizens,’ said MrFink who is the head of US investment management company BlackRock.
Greece could run out of cash by the end of the month. On Monday, the government ordered state entities to park spare cash at the central bank in a bid to pay civil service salaries and IMF loan repayments due in early May.
“The latest negative news from Greece is that the administration is forcing government entities to transfer cash to the central bank – a clear sign of a cash crunch,” said currency trader Johan Cairns of Rand Merchant Bank.
The South African Rand took advantage of the Euro’s weakness and was able to make solid gains. The currency managed to advance by over 0.50% as market attention remained fixed on Europe. The Greek situation was enough to distract economists from the problems facing the South African economy, at least temporarily.
In the long term however, the Rand is forecast to come back under pressure against the Euro and other major peers as power cuts and civil unrest are set to have a negative impact upon the South African economy.
The EUR/ZAR exchange rate will experience more volatility on Wednesday due to the release of the latest South African interest rate data.