The rand reversed the previous session’s gains after the US Federal Reserve revised down its growth forecasts, while the world waits to see if the US will get involved in the battle between Israel and Iran.
The local currency was 0.67% weaker at R18.13/$ at 6.30pm on Thursday, making it the worst-performing emerging market currency against the dollar.
On Wednesday, the Fed left its benchmark interest rate unchanged, but its updated projections painted a more cautious picture for the US economy.
The Fed now expects US GDP growth to slow to 1.4% in 2025, down from its previous estimate of 1.8%, while inflation is forecast to accelerate to 3%, an increase from the March projection of 2.7%. Unemployment is also expected to tick higher, reaching 4.5% by year-end, up from 4.2% now.
The world’s most influential central bank signalled the possibility of two rate cuts later this year, but policymakers remain divided on the timing and extent of monetary easing.
“Markets have been particularly worried about the increased chance of a weakening in the US economic environment following trade and other policy changes in the US, while uncertainty is high, adding to risk aversion for investors,” said Investec chief economist Annabel Bishop.
“Markets expect two US interest rate cuts this year, down from three at the previous meeting. With the Fed not having altered its funds rate this year to date, market interest rate cut expectations have been waning.
“Concerns persist that the Fed is leaving it too late to cut interest rates in the face of sudden economic weakness, while the federal open market committee says if either growth or inflation is too far from their goal, they will react,” said Bishop.
Global markets were also contending with heightened geopolitical risk as conflict in the Middle East intensifies. Ongoing hostilities between Israel and Iran have kept investors on edge, sending oil prices higher and prompting a flight to safe-haven assets such as US treasuries and the dollar.
Brent crude continued its upward trajectory, reflecting fears of supply disruptions. At 6.30pm Brent crude was 1.97% firmer at $78.21 a barrel.
Deutsche Bank said earlier Brent could reach as much as $130 a barrel in a worst-case scenario.
The JSE tracked mostly lower global equity markets, closing 0.08% weaker at 94,914 points.
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