South African rand firmer vs dollar; stocks futures down

British Pound

Reuters: The British pound further eased against the euro and hovered at one-and-a-half month lows on Monday following its biggest weekly loss in over two years versus the shared currency, though it steadied against the U.S. dollar. The euro has had a strong run over the past week after Germany's game-changing fiscal reforms boosted the European growth outlook, while the dollar has languished against major currencies due to worries about a U.S. economic slowdown and flip-flops in tariff policy.

The spotlight will be on the release of Britain's monthly gross domestic product later this week. "Unless there is a significant deviation from the consensus, the data is not likely to impact expectations regarding Bank of England policy," George Vessey, lead FX and macro strategist at Convera said. The Bank of England is expected to hold interest rates at 4.5% next week. Britain's jobs market cooled in February, with hiring activity slowing and starting salaries rising at the slowest rate in four years, according to a survey on Monday that underscored companies' concerns about higher employment costs and a soft economy.

The euro was up 0.14% at 83.97 pence, while the pound was steady on the dollar at $1.29265. Vessey said the pound was struggling to regain technical levels against the euro, and if it could not, "further downside could be on the horizon, particularly as the fiscal divergence between the UK and euro zone may favour the euro due to differing growth trajectories", Vessey said. Germany last week proposed to ramp up spending with a 500 billion euro special fund sought for infrastructure and plans to reform its debt rules to boost defence spending.

US Dollar

Reuters: The yen was investors' safe harbour of choice on Tuesday and it traded near five-month highs as fears about a tariff-driven slowdown in U.S. growth have rattled U.S. stocks and the dollar. The Nasdaq fell 4% overnight and the S&P 500 slid 2.7% as equities caught up with a big rally in U.S. bonds, moving on the risk that U.S. economic growth slows down. The yen touched a five-month peak of 146.625 per dollar and was last trading at 146.85. Other moves in the currency market were more muted, but the lack of flight to the dollar - which has been sinking in recent weeks - was noteworthy, according to analysts.

The overnight drop in the risk-sensitive Australian dollar was a modest 0.4% and it last bought $0.6272. Sterling was holding on above its 200-day moving average at $1.2875 and the euro was steady just above $1.08. There were falls in the Canadian dollar and Mexican peso - the economies whose exports are to bear the brunt of U.S. tariffs - but they were modest. The Canadian dollar was last steady around C$1.44 per dollar and the peso was at 20.34 per dollar. China's yuan was steady at 7.26 per dollar in early offshore trade on Tuesday.

"Historically, the dollar outperforms when we get a solid rise in volatility, but when the U.S. economy and U.S. equity market is the central point of concern, this is now limiting the attractiveness of the dollar," said Chris Weston, head of research at broker Pepperstone in Melbourne. The turmoil in equities seemed to be triggered by a Donald Trump Fox News interview, in which the president talked about a "period of transition" and declined to predict whether his tariffs on China, Canada and Mexico would result in a U.S. recession.

The dollar index, however, had already notched its largest weekly drop in more than two years last week as selling tracked a fall in U.S. bond yields and the euro leapt on German plans to reform a brake on borrowing. "The market is unsure whether fading U.S. exceptionalism will continue to hurt the dollar or whether the dollar benefits from its safe-haven status," said Bank of Singapore strategist Sim Moh Siong, noting any extension of selling in stock markets may lead safe-haven dollar buying to finally kick in.

The dollar index was mostly flat overnight as small rises against the Aussie and sterling were offset by losses on the yen and it settled at 103.89. Germany's Greens overnight vowed to block plans for a massive increase in state borrowing to revamp the military, but forwarded rival proposals in a bid for compromise and the euro handed back none of its massive gains from last week. U.S. bonds, however, rallied, pushing down yields at a time when global yields are spiking. In a week, the gap between 10-year U.S. and German yields has shrunk 33 basis points and the gap between U.S. and Japanese yields has shrunk 17 bps.

South African Rand

Reuters: South Africa's rand started the week on firm footing against the dollar on Monday, and should stay near one-month highs as the greenback remains under pressure. The dollar was languishing near one-month lows against a basket of currencies after jobs data on Friday capped a week of disappointing numbers, which showed the world's largest economy could be slowing down. The rand posted its biggest weekly gain since December last week, hitting a one-month high of 6.68. It was at 6.6890 to the dollar at 0636 GMT, 0.43 percent firmer than Friday's New York close of 6.7180.

The 6.68 level is strong resistance for the rand that will signal moves towards the early 6.60s if breached, said a Johannesburg-based dealer. "We are waiting for Europe to get more direction and the euro seems to be marking for a bit of time and after Friday's (U.S. jobs data) I would imagine the move for dollar/rand would be to the downside," the dealer added. The euro, the currency of South Africa's largest trading partner, was at one-month highs to the greenback. Reserves data on Tuesday should show how active the Reserve Bank was in accumulating foreign exchange in May.

The bank has been moderate in its reserves build-up in the past few months as the strength of the rand currency has helped to counter the effects of higher international oil and food prices. Local stock futures pointed to a lower open at 0700 GMT, with the JSE's blue-chip Top-40 June futures contract down 0.94 percent before the start of trade. Stocks ended last week lower. Government bonds firmed slightly, with yields near 5-month lows as the local paper has continued to attract strong foreign demand. The yield on the 2015 issue down 1.5 basis points to 7.415 percent and that on the 2026 bond down by the same margin to 8.39 percent.

Also on the data front this week is April's manufacturing output numbers on Thursday. A Reuters poll showed the market is expecting growth in manufacturing output to quicken to 5.0 percent from 4.6 percent year-on-year in March. A much weaker number will back the case to leave local rates lower for longer and boost bonds.

Global Markets

Reuters: Asian stocks fell sharply on Tuesday as a market selloff extended on mounting worries that a wide-ranging trade war could dent U.S. economic growth and lead to a recession, sending skittish investors to the safe-haven Japanese yen. Investor concerns about the potential economic slowdown were exacerbated after President Donald Trump in a Fox News interview talked about a "period of transition" while declining to predict whether his tariffs would result in a U.S. recession. Those comments and worries sapped risk sentiment, sending stocks sliding and weighing on the U.S. dollar and Treasury yields.

In Asia, stocks were battered across the board with Japan's Nikkei and Taiwan stocks sliding about 3%, hitting their lowest level since September. Australia's benchmark index was 0.8% lower having touched a seven-month low earlier in the day. Even Chinese stocks, which have been on a tear this year, were not immune to the downbeat mood. The blue-chip index fell 0.5%, while Hong Kong's Hang Seng Index was 0.8% lower. Asian markets were taking their cues from Wall Street where the S&P 500 fell 2.7% on Monday, its biggest one-day drop this year, while the Nasdaq slid 4.0%, its biggest single-day percentage drop since September 2022.

Fears of an economic downturn have driven a stock market selloff that has wiped out $4 trillion from the S&P 500’s peak last month. S&P and Nasdaq futures cut steep losses from early Asian morning on Tuesday to trade mostly flat ahead of European open. European futures stabilised as well and pointed to a muted start. Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities, said most traders believed Trump would blink if stocks tanked. "Markets have now gotten the memo that the administration is intent on ripping the band-aid off. Tariffs and recession may be the medicine to create disinflation and getting that 10-year yield lower. For now it's a controlled demolition."

The yield on benchmark U.S. 10-year notes fell 5 basis points in Asian hours on Tuesday after dropping 10 bps in the previous session, the largest daily drop in almost a month. The two-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 5 bps to a five-month low. Traders are now pricing in 85 bps of easing from the Fed this year, compared to 75 bps on Monday, LSEG data showed. Safe havens were in demand, with the Japanese yen touching a five-month high against the dollar and was last at 147.07 per dollar. The yen is up 7% against the dollar in 2025.

The Swiss franc also strengthened and was hovering near the three-month high touched on Monday. It was last at 0.8791 per dollar on Tuesday. The dollar index, which measures the U.S. currency against six other units, was huddled near a four-month low. The index has dropped over 4% so far this year. Unlike Trump's first term, when signs of cracks in the economy or stock market would have seen a pivot on trade policy, this time around, Trump seems determined to stay the course, said Kyle Rodda, senior financial markets analyst at Capital.com.

"That's raising these fears about a major growth slowdown, possibly recession, caused by this very aggressive approach to trade. I think investors are coming to the shocking realisation that Trump doesn't have their back." Citi analysts cut their recommendation for U.S. stocks to "neutral" from "overweight", arguing the U.S. economy may no longer outpace the rest of the world in the coming months. In commodities, oil prices fell for a second day on Tuesday on worries that U.S. tariffs would slow economies around the world and hurt energy demand while OPEC+ ramps up its supply.

Brent futures fell 0.65% to $68.83 a barrel, while U.S. West Texas Intermediate crude futures lost 0.82% to $65.49 a barrel. Gold prices inched higher to $2,895.75 per ounce, within touching distance of the record high hit last month. Gold is up 10% so far in 2025 after climbing 27% last year.

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