Reuters: The South African Rand extended its gains on Thursday, a day after the U.S. Federal Reserve opted to keep interest rates unchanged.
South African Rand extended its gains
At 1530 GMT, the rand traded at 18.3000 against the dollar, 0.25% stronger than its previous close. On Wednesday, the rand gained over 1% to its strongest level in five weeks. “We have now seen ten consecutive days of gains, a run only bettered twice in history – in 1994 and 2006,” said Rand Merchant Bank analysts in a research note, adding that this recovery was the most rapid in this cycle.
ALSO READ: Who is the richest person in the world today? Top 10 list – 16 June 2023
The dollar index last traded at 102.29, about 0.62% weaker than its closing level on Wednesday. Like most emerging market currencies, the risk-sensitive rand is susceptible to moves in global drivers such as U.S. monetary policy and the dollar in the absence of local catalysts. Shares on the Johannesburg Stock Exchange closed higher, with both the broader all-share index and blue-chip Top-40 index ending up about 0.6%. South African financial markets are closed today on account of Youth Day.
South Africa’s benchmark 2030 government bond was weaker, with the yield up 3.5 basis points at 10.740%.
US Dollar
Reuters: The U.S. dollar was last roughly 0.1% higher at 140.42 yen. The yen lost some ground after the Bank of Japan on Friday maintained ultra-low interest rates and forecast that inflation will slow later this year – reiterating its dovish stance that runs counter to hawkish policies taken by peers globally. As widely expected, the BOJ maintained its -0.1% short-term interest rate target and a 0% cap on the 10-year bond yield set under its yield curve control (YCC) policy.
ALSO READ: Top 3 richest South Africans in the world – 16 June 2023
The yen fell broadly following the decision, though it later pared some losses as traders turned their attention to BOJ Governor Kazuo Ueda’s post-meeting press conference later in the day. Against the euro, the Japanese currency edged marginally higher to 153.65, after having tumbled to a fresh 15-year low of 153.925 per euro earlier in the session. “While the decision itself was not a major surprise, a few participants had expected a YCC adjustment, and the financial market reacted with higher stock prices and a weaker yen,” said Hirofumi Suzuki, chief FX strategist at SMBC. “The focus will now be on whether the YCC framework will be adjusted along with an upward revision to the inflation outlook at the monetary policy meeting in July.”
Elsewhere, the euro was poised for its best week in months after the European Central Bank (ECB) raised borrowing costs to a 22-year high and signalled further rate hikes to come. That and a run of soft U.S. economic data saw the dollar fall broadly as traders scaled back their bets on how high U.S. interest rates would need to rise. The euro stood near a one-month high at $1.09395, having surged over 1% on Thursday following the rate hike and hawkish forward guidance from the ECB. ECB President Christine Lagarde told a press conference that another rate hike in July was highly likely and that the central bank still has “ground to cover” to stave off high inflation.
ALSO READ: RAND WATCH: Exchange rate against FIVE major currencies – 15 June
“The biggest hawkish surprise was the upward revision to 2024 and especially 2025 inflation forecasts,” said economists at Deutsche Bank in a note. “Our baseline expectation is a final 25 bps hike in July to a terminal rate of 3.75%. The risks remain clearly to the upside.”
Sterling rose to an over one-year peak of $1.2794 in early Asia trade and last bought $1.2776, as traders ramped up bets that the Bank of England is likely to raise interest rates for the 13th meeting in a row next week. At 1300 GMT, sterling was stuck at $1.2661, but had surrendered earlier gains against the euro, which was up 0.22% at 85.74 pence.
ALSO READ: Newspaper front pages from around the world, 16 June 2023
The ECB’s monetary policy decision came a day after the U.S. Federal Reserve left interest rates unchanged, snapping a string of 10 consecutive rate hikes. However, the Fed also signalled that borrowing costs may still need to rise by as much as half of a percentage point by the end of this year. But a string of data out on Thursday had markets challenging that view, as economic activity in the United States slows and inflation cools. Production at U.S. factories almost stalled in May as manufacturing struggled under the weight of higher interest rates, while U.S. import prices similarly fell last month. A separate report from the Labor Department showed initial claims for state unemployment benefits were unchanged at a seasonally adjusted 262,0000 for the week ended June 10, above economists’ forecast for 249,000 claims.
U.S. retail sales unexpectedly rose in May, however, as consumers stepped up purchases of motor vehicles and building materials. The greenback slipped in the wake of the data releases and tumbled to a one-month low of 102.08 against a basket of currencies on Thursday. The dollar index last stood at 102.22. In other currencies, the Australian dollar fell 0.17% to $0.6871, but was not far from near four-month highs of $0.6893 hit in the previous session. The kiwi slipped 0.05% to $0.6232.
British Pound
FXStreet: The GBP/USD pair trades with a mild positive bias for the fourth successive day on Friday and touches its highest level since April 2022 during the Asian session. The pair is currently placed just below the 1.2800 round-figure mark and looks to build on this week’s blowout rally amid the prevalent selling bias surrounding the US Dollar (USD).
Despite the Federal Reserve’s (Fed) hawkish signal that borrowing costs may still need to rise by as much as 50 bps by the end of this year, investors seem convinced that the US central bank is getting closer to the peak of its policy tightening cycle. This was reinforced by the overnight slump in the US treasury bond yields, which, along with the post-ECB surge in the shared currency, keep the USD depressed near a five-week low and acts as a tailwind for the GBP/USD pair.
ALSO READ: Beijing temperature hits record for mid-June: Guess how hot?
The safe-haven Greenback is further undermined by a generally positive tone around the equity markets, bolstered by a move by the People’s Bank of China (PBOC) to cut rates on its medium-term loans on Thursday. The British Pound (GBP), on the other hand, draws support from expectations that the Bank of England (BoE) is not yet done with rate increases as inflation in the UK, which rose 8.7% YoY in April, is still running at more than four times its 2% target.
In fact, the markets have fully priced in another 25 bps lift-off, from 4.5% to 4.75% on June 22. Moreover, investors now see a greater chance that the rate will peak at 5.5% later this year. This, in turn, suggests that the path of least resistance for the GBP/USD pair is to the upside. That said, the Relative Strength Index (RSI) on the daily chart has moved on the verge of breaking into the overbought territory and warrants some caution before placing fresh bullish bets.
ALSO READ: Load shedding for LONG WEEKEND: Here’s the UPDATED schedule
Nevertheless, spot prices remain on track to register strong weekly gains and end in the green for the third straight week. In the absence of any relevant market-moving economic releases, either from the UK or the US, the US bond yields, along with the broader risk sentiment, will play a key role in influencing the USD price dynamics. This should provide some impetus to the GBP/USD pair and allow traders to grab short-term opportunities on the last day of the week.
Global Markets
Reuters: Asian shares rose to a four-month high on Friday as U.S. economic data stoked expectations that the Federal Reserve is near the end of its rate-hike campaign, while the yen fell after the Bank of Japan maintained its ultra-easy monetary policy. MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.4% higher and on course for 2.5% gain in the week, its best weekly performance since January. But futures indicated European markets were set for a more subdued start, with the Eurostoxx 50 futures down 0.09%, German DAX futures down 0.04% and FTSE futures down 0.03%. E-mini futures for the S&P 500 fell 0.22%.
ALSO READ: Elon Musk heads to France for Emmanuel Macron meeting
The BOJ rounded up a central bank heavy week, keeping its pledge to “patiently” sustain massive stimulus to ensure Japan sustainably achieves its 2% inflation target accompanied by wage hikes. As widely expected, the BOJ maintained its -0.1% short-term interest rate target and a 0% cap on the 10-year bond yield set under its yield curve control (YCC) policy. Investors are now awaiting Governor Kazuo Ueda’s press conference (0630 GMT) for his views on inflation, the policy outlook and the yen’s renewed declines. “Comments around FX from Ueda will be key to watch at the press conference given the recent pressure on yen, but my sense is that BOJ will look at that as temporary and is unlikely to react,” said Charu Chanana, market strategist at Saxo Markets.
The yen weakened 0.13% to 140.49 per dollar, below the seven-month low of 141.50 it touched on Thursday. The Nikkei turned positive after the BOJ decision, recouping early losses. China’s stock markets extended gains after the central bank cut the borrowing cost of its medium-term policy loans on Thursday for the first time in 10 months to aid a shaky economic recovery. Investors are hoping more stimulus is on the horizon. China’s benchmark CSI 300 Index was 0.37% higher while Hong Kong’s Hang Seng Index gained 0.6%.
ALSO READ: Africa embarks on ill-fated peacekeeping mission in Ukraine
The S&P 500 and Nasdaq surged on Thursday to close at their highest in 14 months after data showed U.S. retail sales unexpectedly rose in May, while U.S. jobless claims came in higher than expected. “If U.S. labour markets are finally starting to soften, this lends some credibility to the Fed’s decision to pause,” said Ryan Brandham, head of global capital markets, North America at Validus Risk Management. The slew of data helped firm up bets that the Fed would not follow through with more rate hikes as the central bank hinted on Wednesday when it left interest rates unchanged.
Markets are now pricing in 67% chance of the U.S. central bank raising its interest rate by 25 basis points next month, according to CME FedWatch tool. The European Central Bank on Thursday left the door open to more rate hikes as it flagged risks from rising wages and revised up its inflation projections. The ECB also raised interest rates by 25 bps taking its policy rate to 3.5%, a level not seen since 2001. “ECB President Lagarde insisted that there was more ground to cover, but the overall tone of the press conference suggested that there might not be a whole lot more to do, despite the upgrade to the inflation forecast,” strategists from NatWest Markets said in a note.
ALSO READ: Ethiopia in action: 186 fraud suspects identified
In the currency market, the euro was at $1.0936, hovering close to one-month high it touched on Thursday after the ECB decision. The dollar index , which measures the U.S. currency against six major peers, was at 102.24, drifting near a one-month low of 102.08 it touched overnight. Oil prices eased, taking a pause from the previous session when futures gained steeply on optimism around higher energy demand from top crude importer China. U.S. West Texas Intermediate crude eased 0.21% to $70.47 per barrel and Brent was at $75.50, down 0.22% on the day.
Published by the Mercury Team on 16 June 2023
For more news on global and local market performance, follow our business and finance page.
