News24 | Rand under pressure, with euro sinking to 17-month low on French woes

Dollar demand continued to put pressure on the rand at the start of the week, with rising Treasury yields making US assets more attractive, while a global debt selloff is making investors more risk-averse.

The rand was trading at around R16.67/$ at Monday midday, close to its weakest level since the end of July.

Iress data shows the local currency spiked to above R16.73/$ early Monday morning. The rand was trading below R16.40 less than a week ago.

“Foreigners have sold off R14.5 billion in SA bonds [net of purchases] since early last week, as South Africa is affected by the rise in global risk aversion, even though its own government finances are seen to be improving, which has limited its selloff,” Investec chief economist Annabel Bishop said in a note.

The Medium-Term Budget Policy Statement, scheduled for 21 October, is expected to show a revenue overrun, with mining companies in South Africa benefiting from higher gold and platinum prices compared with last year, Bishop added.

“For South Africa, a 25-basis-point hike at the monetary policy committee meeting in November is virtually fully factored into the interest rate outlook, which will occur before the US interest rate lift, if it occurs in December, and [should] provide some assistance to the rand.”

Euro woes

The euro also slid sharply on Monday to a 17-month low as fiscal worries in France, in the wake of ‌a steep bond market rout, stoked contagion fears in the region, helping the dollar shrug ⁠off soft US jobs data that dented near-term rate hike expectations.

The euro sank to as low as $1.1161 on Monday morning, its weakest level since ⁠May 2025, after four straight weekly declines, weighed down by France’s debt levels and concerns of political gridlock ahead of next year’s election.

The rand was trading at R18.67 to the euro on Monday, from above R20 a year ago, Iress data shows.

“Don’t stand in front of the train,” said Chris Weston, head of research at Pepperstone, warning against betting on a quick euro rebound.

He ‌said the move was a continuation of recent fiscal issues, with “possibly a whiff of contagion creeping in”.

Brent Donnelly, president of foreign exchange trading at analytics firm Spectra Markets, said the French politics trade many expected would escalate this winter, as the April 2027 elections near, is here now.

“It’s not completely obvious what might fix things here, ‌as any budget promises made by the French government now are not super credible, with a change of power coming soon,” he said.

The bond market tumult and the euro’s weakness spurred concerns that France’s troubles could spread across the eurozone, similar to the debt crisis more than a decade ago, and force the European Central Bank to help shore up French debt.

Some analysts, however, said it was still too early to judge whether there was a growing risk ‌of contagion.

Ninghui Liu, head of investment strategy ⁠and research for APAC at State Street Investment Management, said France’s fiscal position was becoming increasingly unstable but noted that the market had only been reacting since last week.

“For now, I think it’s more of a country story rather than a euro crisis,” he added.

Should the strain deepen, other eurozone members would not stand aside, Liu said.

“Germany definitely will step in because they are the ones who want to make sure that the EU can still hold.”

Markets are also still reeling from the recent bond rout, which drove global borrowing costs to multidecade highs and pummelled French debt as investors fretted over inflation risks from soaring oil prices.

French bond futures dipped 0.22%, close to the record lows they have been hugging in recent days, while German Bund futures rose 0.1%, highlighting the divergence in bond markets as investors seek shelter in relatively safer debt.

The premium of French 10-year borrowing costs over ⁠Germany’s ended last week at 140 basis points, after gaining 34 basis points, its biggest weekly jump in 17 years, according to LSEG data.

The yield on US 10-year Treasury notes was 1.6bps lower at 5.260%, as some calm returned following a spike to a 24-year high last week that rattled markets.

Sterling slipped 0.25% to $1.3205, while the Japanese yen changed hands at 157.92 per dollar. That left the dollar index, which measures the ⁠US currency against six major units, up 0.47% at 102.37.

“The dollar is the main winner in the current environment, as not only is the rise in Treasury yields boosting the appeal of US assets, but the broad selloff in debt globally is fuelling safe haven flows into the greenback,” said Matthew Ryan, head of market strategy at Ebury.

Much of the dollar strength in recent weeks has come from traders pricing ⁠in Fed rate hikes in the coming months. However, Friday data showed US jobs growth slowed more than expected in September, denting those expectations.

Traders ‌are now pricing in ‌a 78% chance of the Fed holding rates steady in October, compared with 36% a week earlier, the CME FedWatch tool showed. They still expect a hike in December and another two in the first half of 2027.