South African rand firms to five-month high on Fed rate cut bets

JOHANNESBURG (Reuters) -The South African rand strengthened to a five-month high on Thursday, as risk sentiment improved on growing bets the Federal Reserve may cut interest rates in September.

At 1518 GMT, the rand traded at 18.2250 against the dollar, 0.25% stronger than its previous close. It briefly hit 18.1775 earlier in the day, a level not seen since mid-December.

The dollar index was up 0.27% against a basket of currencies.

Data released on Wednesday showed April U.S. core inflation eased to its slowest pace in three years, pulling forward expectations for rate cuts in the world’s biggest economy.

“Risk sentiment has improved on the back of the rate cut optimism, and we have the rand trading below the 18.30 mark … which is in line with stronger EM markets,” said Andre Cilliers, currency strategist at TreasuryONE.

No major economic data releases are scheduled in South Africa until Wednesday, when local inflation figures are due.

However, economists warned that despite the rand’s recent gains, markets remain cautious ahead of a national election on May 29.

“We think risks around the upcoming election in South Africa, among other factors, will cause renewed weakness in the currency before long,” said Jonathan Petersen, senior markets economist at Capital Economics.

In the stock market, the Top-40 index closed 0.10% higher and the broader all-share index rose 0.19%.

South Africa’s benchmark 2030 government bond was stronger, with the yield down 2.5 basis points at 10.365%.

(Reporting by Bhargav Acharya and Nellie Peyton; Editing by Bernadette Baum, Jan Harvey and Richard Chang)


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