The Euro to South African Rand (EUR/ZAR) exchange rate declined by 0.60% on Thursday as emerging market assets were buoyed by dovish comments from the US Federal Reserve.
The Euro to South African Rand (EUR/ZAR) exchange rate was trading in the range of 13.8485 to 13.9817
Emerging market investors were cheered as Wednesday nights Federal Reserve policy meeting suggested that it’s rating hike cycle will not be as severe as first feared. Dovish comments by Fed Chair Janet Yellen combined with news that policy makers lowered their growth forecast and inflation projections sent the ‘Greenback’ sliding.
Policy makers lowered their US growth estimates from the range of 2.3% to 2.7% estimated in March to a range of 1.8% to 2%. The downgrade reflects the economy’s contraction in the January to March quarter which was a result of harsh winter weather affecting large parts of the US.
‘As widely expected the FOMC upgraded their assessment of the economy in today’s statement but in trimming their growth forecasts and signalling a shallower 2016 path for rates in the dot plot interest rate projections the market has read this as slightly dovish,’ said Westpac senior currency strategist Richard Franulovich.
US Dollar Exchange Rate Softens against South African Rand (USD/ZAR) and Euro (EUR/ZAR) As Interest Rate Bets Fall
The likelihood of an interest rate hike has softened as a result of the policy meeting, with many economists now forecasting that a rate rise will not occur in September but instead later in the year. The International Monetary Fund (IMF) and World Bank have both warned the Fed that a rate hike will have a negative impact upon the global economy and eventually the US economy. In a direct message, the IMF suggested that the Fed should wait until 2016 before altering rates.
“I want to emphasize, and I think the IMF would agree with this, that the importance of the timing of a first decision to raise rates is something that should not be overblown whether it is September or December or March, what matters is the entire path of rates, and as I have said the committee anticipates economic conditions that would call for a gradual evolution of the Fed funds rate towards normalization. We will be responding to incoming data. We have tried to make that clear,” said Yellen.
The Euro could recover lost ground against the South African Rand later in the session if US inflation data comes in strongly. A higher reading will be conductive to US Dollar strength and will weaken the Rand.