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South African rand plunges as risk-off sentiment surges

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Nelson Mandela Images on South African Bank Notes

South African Rand Weakens Amid Global Risk-off Sentiment

The South African rand tumbled over 1% on Tuesday, extending Monday’s losses as global risk-off sentiment increased. At 0905 GMT, the rand traded at 18.0325 against the dollar, about 0.85% weaker than its previous close. It had weakened to as much as 18.0884 earlier in the day. The dollar last traded at 102.150 around 0.3% firmer against a basket of global currencies.

After the rand’s strong advance through June, it was always vulnerable to a slight correction. This has been triggered by risk-off market sentiment globally, as seen in emerging market currency weakness, according to Danny Greeff, co-head of Africa at ETM Analytics.

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South Africa’s Vehicle Sales Data for July to be Released

At around 1200 GMT, the National Association of Automobile Manufacturers of South Africa will release the country’s vehicle sales data for July. On the Johannesburg Stock Exchange, the blue-chip Top-40 index last traded 0.05% stronger than its closing level on Monday.

Concerns Over South Africa as an Investment Destination

South Africa does not look like an attractive investment destination at the moment and will need to maintain higher bond yields to keep itself funded with foreign capital, added Greeff.

Pound Falls to Three-Week Low Ahead of Bank of England Decision

The pound fell to a three-week low on Tuesday as investors digested economic data and looked towards an uncertain Bank of England interest rate decision on Thursday. Sterling has risen around 6% this year as the BoE has hiked interest rates to deal with stubbornly high inflation. It peaked at a 15-month high of $1.314 in the middle of July before falling after data showed British inflation came in lower than expected at 7.9% in June.

The pound was down 0.54% to $1.277 on Tuesday, the lowest since July 10. Meanwhile, the euro was up 0.24% against the pound at 85.86 pence. “Sterling’s decline isn’t out of lockstep with the general grind lower in G10 FX today against the dollar,” said Simon Harvey, head of foreign exchange analysis at Monex.

Dollar Struggles After Fitch Downgrades US Credit Rating

The dollar struggled to make headway on Wednesday after a cut on the U.S. government’s top credit rating by Fitch raised questions about the country’s fiscal outlook. Rating agency Fitch on Tuesday downgraded the United States to AA+ from AAA in a move that drew an angry response from the White House and surprised investors, coming despite the resolution two months ago of the debt ceiling crisis. That nudged the greenback lower, lifting the euro toward $1.10. The single currency last gained 0.12%, after earlier touching a session-high of $1.1020. Sterling steadied at $1.27755, while the U.S. dollar index rose 0.07% to 102.07, having slipped broadly in the wake of the Fitch news.

We don’t think the Fitch decision is that material. Certainly, we’ve seen the market move a little bit this morning, but over the near term, I don’t think it’s going to be a longer-lasting driver, said Rodrigo Catril, senior currency strategist at National Australia Bank.

Asian Stocks Slide After Fitch Downgrades US Credit Rating

Asian stocks and U.S. Treasury yields declined on Wednesday after ratings agency Fitch unexpectedly downgraded the United States’ top-tier sovereign credit rating. MSCI’s broadest index of Asia-Pacific shares slid 1.9%. Japan’s Nikkei dropped by 1.8%, while Australian shares tumbled 2.3%. China’s mainland benchmark and Hong Kong’s fell by 0.9% and 2.2%, respectively, as some investors booked profits in the absence of concrete and forceful measures by Beijing to shore up a faltering economy. Asian stocks were also weighed down by declines on Wall Street overnight. U.S. stock futures, the S&P 500 e-minis, pointed 0.2% lower on Wednesday.

In early European trades, the pan-region Euro Stoxx 50 futures were down 0.7%. German DAX futures and FTSE futures fell 0.8% and 0.5%, respectively. Fitch cut the United States by one notch to AA+ from AAA, citing fiscal deterioration, a decision announced after the Wall Street close on Tuesday. U.S. 10-year Treasury yields declined by about 2 basis points to 4.025% in Tokyo.

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