The rand sank to a four-week low, in tandem with the broader asset class of risk-sensitive currencies, after the Fed indicated on Wednesday that its policy pivot has commenced with forward guidance shifting from “extremely dovish and patient” to “moderately dovish and bullish”, according to NKC Research.
The Fed refrained from making a policy announcement in its June FOMC policy statement, but its economic and median interest rate projections revealed a marginally less dovish stance.
The Fed expects a summer boom in activity and higher inflation through 2021, in line with our forecast. Inflation is also expected to be “stickier” in 2022. Core and headline inflation are expected to moderately surpass the 2 percent target through 2023.
The median dot plot expectation was slightly more hawkish with two rate hikes expected in 2023 (11 participants) and seven participants expecting at least one rate hike in 2022. Meanwhile, Chair Powell walked a fine line during the press conference.
Powell said the labour market recovery remained uneven and incomplete. He echoed the Fed’s more bullish economic projections showing the economy meeting rate lift-off conditions earlier than expected.
At the close of local trade, the rand quoted 0.80 percent weaker, at R14.06/$, after trading in range of R13.93/$ to R14.16/$. The rand traded flat overnight.
South African bourse
The JSE All Share (-1.08 percent) ended lower yesterday, dragged by losses in large resources (-3.33 percent) and financial (-2.43 percent) stocks. In the overall emerging market sphere, the MSCI Emerging Market Index (-0.5 percent) traded in the red.
Brent crude oil
A firmer dollar placed pressure on Brent oil prices yesterday, but losses were capped by a drop in US oil inventories. At the close of local trade, benchmark Brent crude futures quoted 0.38 percent lower at $73.85pb. Crude prices extended losses during Asian trade this morning.
BUSINESS REPORT ONLINE