The Daily Forex Market Report

Good morning

“Transitory” is back!!!  The last time the FED referred to inflation as transitory things didn’t go well with price increases in the US ending up at 9% which finally forced the embarrassed central bank into action.  Now the feeling is that tariff related inflation will also be transitory, I suppose only time will tell if they’re right this time. 

These are the mid rates at 6:25 today:

Market News

• After strengthening earlier in the week the Rand took a backwards step yesterday morning, but fortunately this weakness also turned out to be transitory as our fall to R18.27 to the Dollar was reversed in the afternoon and evening sessions.  We open the shortened week at R18.10 today.
• With the FED’s update last night definitely being the week’s main event one would be forgiven for thinking that most of the Rand’s direction would come as a result of the Dollar’s reaction, but we got some pleasantly surprising local data yesterday which kicked proceedings off nicely.  SA’s economic struggles are well documented, and are evidenced in our 2024 GDP figure coming in at a lowly 0.6%, but the consumer seems to be turning a corner which has benefited the Rand.  Forecasts called for January’s retail sales report to slip from December’s impressive 3.2% growth but the actual number shot the lights out with an increase of 7%. 
• Our local CPI report yesterday was also well behaved as it stayed level at 3.2%, and the Rand enjoyed a productive morning with us strengthening from the day’s worst level of R18.27 down to R18.19, and then we made another move lower as Dollar weakness took us to R18.09.  All eyes were of the FED as well as Jerome Powell’s press conference and the interesting outcome is that risk-on sentiment sprang to life even through the FED reduced their US GDP forecast for 2025 while also lifting their inflation projection, a scenario that most analysts had assured us would be bad news for the already under pressure stock market. 
• At face value the FED’s update should have spooked the market but there were a few touches that not only soothed any fears, but which actually helped propel equities higher.  The most notable takeaway was the return of the word “transitory” which wasn’t in the official policy statement, although their longer-term inflation projections have a distinct transitory feel, but which Powell did mention later on when speaking to the press.  The FED lifted their 2025 inflation forecast from 2.5% to 2.8% but in 2026 they see it coming down to 2.2% and in 2027 hitting their 2% target, projections that Powell defending by saying that any inflationary effects from tariffs will be short lived and so the FED is looking through these near term impacts.   
• Despite the FED’s changes to their economic projections the market still took the overall event as dovish, this as they left two rate cuts for 2025 in their “dot plot” while Powell also spoke about the still strong US economy.  The market reacted favourably with equities posting much needed gains, but perhaps the scene was already set for a good day thanks to Bank of America CEO, Bryan Moynihan, who said earlier in the day that US consumers are still spending, and that US growth this year will be strong. 
• The following is from CNBC and suggests that recent concerns around a looming US recession might, once again, be misplaced:  Bank of America CEO Brian Moynihan said Wednesday that consumers are continuing to spend and economic growth should be solid though slower this year. “We see the consumer continue to be solid, and that should bode well for the economy,” Moynihan said. “There’s a lot of questions out there, and I think that will sort through. But right now, we’re not talking about what could happen, we’re talking about is happening. The consumer continues to spend pretty strongly for the first part of this year.”
• Local market data today sees the SARB’s monetary policy statement at 3pm with no change to our interest rate pretty much guaranteed.   
• Possible USD mid rate trading ranges in the Rand today are R18.00 and R18.30.

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