Euro gets no love
The single currency has been unable to reverse the greenback’s strong momentum yet. EUR/USD is stuck below the 1.15 threshold, as investors remain worried about the potential negative outcome of the clash between Italy and the EU regarding the Italian budget. The rise in the country’s sovereign yields continues to have market participants holding their breath to the very end. Yesterday, the parliamentary budget office refused to sign off the government’s budget, saying that growth estimates were too optimistic (1.5% in 2019, 1.6% in 2020 and 1.4% in 2021).
Economy Minister Giovanni Tria will go back in the arena on Wednesday morning. Given the latest comments from Di Maio, Deputy Prime Minister, there is little chance that the new proposal would be much different from the one presented yesterday. In light of the developments in the equity market, it seems that investors are not optimistic about the potential outcome of today’s parliamentary session. The FTSE MIB was down 0.45%, the DAX fell 0.50%, while the CAC 40 slid 0.75%. In the absence of significant – positive – developments, the mood will stay down in financial market today.
Relief for the South African rand
The South African rand is still under pressure. Economic growth remains sluggish, while inflation continues to overshoot a target of 3-6%. Additionally, a recent attempt to change constitutional law related to land expropriation without compensation, for owners of more than 12’000 hectares, appears tougher than initially thought by the ruling ANC party.
However, the trend appears to be changing now. Recent USD weakness against emerging currencies, along with President Cyril Ramaphosa’s stimulus package, are improving investors’ sentiment. Yesterday’s resignation of Finance Minister Nhlanhla Nene amid corruption affairs related to the Gupta family and the appointment of former Central Bank Governor Tito Mboweni, was welcomed by the market, pushing the rand higher by almost 2% intraday against the greenback. Accordingly, the ZAR continues to benefit from current events, putting waves of uncertainties aside. Currently bouncing from 14.56 (9 October low), USD/ZAR is expected to increase slightly, approaching 14.70 short-term.
