The rand softened in midday trade on Tuesday as lower than expected April UK consumer price inflation (CPI) resulted in sterling being sold off, which pulled the euro down as well.
“We moved on the UK CPI data as the lower inflation will probably mean more monetary stimulus, which will weaken sterling,” a local trader said.
At 11:45 local time the rand was bid at R8.2596 to the dollar from Monday's close of 8.2088, Friday's worst level of R8.4457, Friday's close of R8.3197 and Thursday's close of R8.3606. Two weeks ago the rand was trading below R8 per dollar.
It was bid at R10.5436 to the euro from Monday's close of R10.5251 and Friday's close of R10.6035, and at R13.0276 against sterling from R12.9888 at Monday's close and R13.1327 at Friday's close.
The euro was bid at US$1.2765 from Monday's close of $1.2809, Friday's worst level of $1.2641, Friday's close of $1.2809 and Thursday's close of $1.2694.
Dow Jones Newswires reported that UK annual consumer price inflation slowed more sharply than expected in April and meant Bank of England Governor Mervyn King did not have to write a letter explaining the high level of inflation to Chancellor of the Exchequer George Osborne, data showed on Tuesday.
The Office for National Statistics said that consumer price inflation rose 0.6% on the month in April and was 3.0% higher compared with a year earlier. That compares with a 0.3% monthly increase in March and a gain of 3.5% on the year a month earlier.
Economists surveyed by Dow Jones Newswire last week had forecast the CPI would rise 0.6% from March and by 3.1% in annual terms.
The BOE governor must write a letter of explanation to the Chancellor if the annual measure of inflation is more than one percentage point above the 2% target rate for three consecutive months. King narrowly avoided the task this month as April would have been the third straight month of excessively high inflation had it risen in line with expectations.
The UK statistical agency said the main downward contribution to the annual CPI measure came from transport. In particular, airfares rose 7.4% in April this year compared with a 29% rise a year ago. The difference was due to the timing of Easter the ONS said, with the holiday falling around the 17th of the month - which is when the ONS collects its inflation data. This year Easter Sunday and the corresponding school holidays came before the 17th.
Rising fuel costs had a significant upward impact on the monthly gain in April, as did the price of alcohol and tobacco. The core measure of CPI, which excludes the more volatile prices of energy, food, alcohol and tobacco rose 0.6% on the month in April and by 2.1% on the year. Economists had forecast the annual CPI would rise 2.0% after the 2.5% gain reported in March. - I-Net Bridge