OVERVIEW

The Dollar saw its biggest decline in five months after inflation in the U.S dropped to 8.5% from 9.1% in June. This has since left investors with alot of uncertainty as to whether the Fed will maintain an agressive stance with their next interest rate decision.

u.s and sa markets

The U.S released their inflation figures this week and it was cooler than expected. CPI in the U.S declined by 0.6% from June to July. This puts the Fed at ease knowing that they are slowly but surely battling inflation as well as moving away from a recession. It is now expected that the Fed will be hiking interest rates by 50 basis points in September. However, a 75 basis point interest rate hike could still be on the cards as the Fed is determined to reach their target of 2% for inflation.

Despite the fact that a decline in inflation is good for the economy and consumers, investors are not too pleased with this as they are now assuming that the Fed will not act as aggressively as they would hope in their next interest rate decision. Traders will most likely reassess their interest rate outlook and remain cautious in the markets.

10-Year Treasury yields in the U.S rallied to 11 basis points after a sharp drop earlier this month, boosted by easing inflation as well.

Locally, Eskom’s electricity crises continues as three power stations have broken down, loadshedding could be on the cards.
Eskom has also imposed a new tarrif plan and wants households to pay before using electricity every month. This will have a heavy effect on households.  It is unclear as to where the energy giants proposition will be approved by the National Energy Regulator.

Technical:
The USD had a choppy week after the inflation data release and the Rand took full advantage of this. The USDZAR pair went as low as R16.11/$ . The Rand rallied nearly 1.5% after the CPI figures. Markets remain volatile as investors are constantly reassessing their interest rate outlook, We anticipate that the USDZAR pair will trade within the range of R16.04/$ to R16.35/$. The pair are trading in a downward trend with a rather bearish greenback. If the pair breaks below R16.00/$, then we could see R15.98/$ as our next possible low.

european markets

The war between Russia and Ukraine continues and the two country officials have repeatedly accused each other of shelling a nuclear plant in Ukraine. The nuclear plant in Zaporizhzhia was struck five times yesterday and it was very close to where radioactive materials are stored. The UN ( United Nations) chief has since called for an immediate end to all military activity around the nuclear plant.

The EU continues to experience muliple crises and the head of the ESA (European Space Agency) has warned that the economic damages from the recent heatwaves and drought is much larger than the energy crises they are experiencing. He has urged for action to be taken with the dire effects of climate change.

Technical:
Much like the Dollar, the Euro has lost ground against the Rand. However, the EUR has tried to maintain its ground in the markets and didnt drop as much as the Dollar. There is not much happening in the EU besides the war and we anticipate that the EURZAR pair will trade within the range of R16.64/€ – R16.92/€

uk markets

Official figures have shown that the UK economy has contracted by 0.1% between April and June in the second quarter of the year. The ONS (Official National Statistics) have also noted that the economy shrank by a further 6% in June due to the Queen’s Platinum Jubilee Holiday.
The Bank of England has forecasted that the UK will fall into recession towards the end of this year and could possibly last throughout the whole of 2023.

The UK are also experiencing the dire effects of climate change.  A drought is expected to be declared in many parts of the UK and few parts of the country are enforcing restrictions such as hosepipe bans. A final decision on the drought declaration will be made after a meeting of the National Drought Group, this comes after months of dry weather in the UK.

Technical:
Just like the other major currencies, the pound Sterling has lost ground against the Rand and the GBPZAR pair saw a low of R19.68/£ this week. We anticipate that the GBPZAR pair will trade within the Range of R19.66/£ – R19.99/£. The Pound could possible lose more ground if the National Drought Group declares a state of drought in the UK.