South African rand slips as markets focus on budget talks

British Pound

Reuters: The British pound fell slightly against a firmer dollar on Thursday but remained close to four-month highs, bolstered by the UK's relatively measured approach to U.S. trade ructions. The pound was last down 0.15% at $1.2941, having hit $1.299 on Wednesday, its highest level since November 7. "It's mostly a dollar story at the moment driving markets. Cable is easing back from almost touching 1.30, moving back towards 1.29," said Francesco Pesole, FX strategist at ING of Thursday's slight GBP weakness.

Analysts highlighted Britain's largely balanced trade position with the U.S. as a supportive factor for the pound. While the EU and Canada retaliated against U.S. President Donald Trump's 25% tariffs on all steel and aluminium imports on Wednesday, Britain's government did not follow suit, though it said it was disappointed with the decision. "The important thing for GBP is that the UK has a trade deficit with the US and exports a lot more services than other countries, so is not as vulnerable to US tariffs as the European Union," said Michael Pfister, FX analyst at Commerzbank.

Sterling has gained more than 6% against the dollar since Trump took office in January. On Thursday Trump threatened to slap a 200% tariff on all wines and other alcoholic products coming out of Europe if the European Union did not scrap its planned tax on American whiskey. Against the euro the pound was up 0.2% at 83.81 pence.

US Dollar

Reuters: The U.S. dollar was broadly firmer on Friday with the euro pulling further away from a five-month peak as markets grappled with escalating global trade tensions and risks of a sharp economic downturn. Sowing more volatility across markets, U.S. President Donald Trump threatened to hit Europe with a 200% tariff on wine, cognac and other alcohol imports. The escalating tensions between the traditional allies came after the EU bloc announced plans to impose levies on American whiskey and other products next month, which itself was a response to Trump's 25% tariffs on steel and aluminium imports that took effect earlier this week.

The intensifying global trade skirmish has fuelled uncertainty and fears about a potentially sharp economic slowdown, with the S&P 500 tumbling into correction territory on Thursday as investors piled into U.S. Treasuries and other safe haven assets. The euro edged down to $1.0847 after sliding further off Tuesday's five-month peak the previous day as the EU-U.S. trade spat rattled markets and Germany struggled to pass a massive spending proposal. Hopes of an imminent ceasefire between Ukraine and Russia were also fading as Moscow said it supported the U.S. proposal but suggested it would need some serious reworking.

The softer euro helped lift the greenback further away from Tuesday's trough of 103.21, its lowest since mid-October, though concerns simmered about the outlook for the U.S. and broader global economy. "I think the million-dollar question with whatever asset class you're looking at is where do we start to find the news that's going to turn around risk sentiment? And at this point in time, it's not clear," said Tony Sycamore, a market analyst at IG. Since climbing to a six-month peak back in January, the dollar has fallen more than 5%, giving up major ground against the euro, sterling, and yen as the U.S. exceptionalism narrative started to fray.

A potential U.S. government shutdown added to uncertainties, although top U.S. Senate Democrat Chuck Schumer on Thursday said he would vote to advance a Republican stopgap funding bill, signalling that his party would provide the votes to avert a shutdown. Elsewhere, the pound drifted around $1.2945 ahead of the release of gross domestic product figures for January, after falling in the previous session from Wednesday's high of $1.2990, its highest against the dollar since early November.

The yen walked back some of its gains on Friday, with the dollar trading at 148.32 yen, up 0.35%. The Japanese currency strengthened to as high as 146.545 per dollar earlier this week, buoyed by safe-haven bids and bets that the Bank of Japan will raise interest rates again later this year. Market players had their eyes on first round results of spring wage negotiations expected sometime later in the day which are expected to encourage the BOJ to continue normalizing monetary policy.

Economists and markets see the central bank standing pat at its meeting next week as policymakers gauge global risks. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.1% to 103.95 after two straight days of gains. The Canadian dollar wallowed at 1.4440 per U.S. dollar, with Canada caught in the tariff crossfire. The risk-sensitive Australian dollar steadied at $0.6284 after slipping on Thursday, while the New Zealand dollar was up 0.1% at $0.5702. In cryptocurrencies, bitcoin was up 1.32% at $81,410.36.

South African Rand

Reuters: South Africa's rand weakened on Thursday as the dollar recovered some ground after recent losses, a day after South Africa's national budget was tabled before lawmakers and met with resistance. At 1504 GMT, the rand traded at 18.3325 against the U.S. dollar, about 0.1% weaker than its previous close. It fell more than 1% at one point on Wednesday. The dollar last traded firmer against a basket of currencies though it remained pressured after data on U.S. producer prices for February came in slightly weaker than expected and traders worried about global growth prospects amid trade tensions.

Domestic investors will keep a keen eye on the post-budget discussions on Friday, following resistance to Finance Minister Enoch Godongwana's proposal on Wednesday to raise the value-added tax by 0.5 percentage point this year and another 0.5 percentage point next year. The initial budget version shelved three weeks ago had put forward a 2-percentage-point VAT increase this year. Most big parliamentary parties publicly rejected Godongwana's revised budget, despite the scaling back of the size of a proposed hike in VAT, which currently sits at 15%.

"Political stability will be closely scrutinised during this period and will be held in high regard for rand forecasts," said Warren Venketas, trading services manager at IG Group. Data released by Statistics South Africa on Thursday showed mining output fell 2.7% year on year in January, while manufacturing output fell 3.3% year on year in the same month. On the Johannesburg Stock Exchange, the blue-chip Top-40 index closed up about 0.4%. South Africa's benchmark 2030 government bond was weaker, with the yield up 2.5 basis points to 9.11%.

Global Markets

Reuters: Asia shares rose on Friday and global markets attempted a rebound after a brutal selloff, while gold reached a record as an escalation of global trade tensions left investors nervous and sparked a flight to safe-haven assets. Relief over the likely aversion of a U.S. government shutdown boosted stocks in early Asian trade, after Senate Democrat Chuck Schumer said he would vote to advance a Republican stopgap funding bill, signalling that his party would provide the necessary support. U.S. stock futures rose sharply in response, with the Nasdaq up 0.87% and S&P 500 futures advancing 0.7%.

EUROSTOXX 50 futures similarly edged up 0.04% and FTSE futures gained 0.1%. "For today, at least, this news from Congress is positive for market sentiment at this point," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. MSCI's broadest index of Asia-Pacific shares outside Japan traded 0.2% higher, though was on track to lose more than 2% for the week, as global trade disputes battered global stocks. In the latest in a long list of tariff threats, U.S. President Donald Trump said on Thursday he would hit imports of European wine and spirits with duties of 200% if the EU did not remove retaliatory surcharges on American whiskey and other products that come into effect next month.

"Trump is making it very clear that if anyone were to retaliate, his counter-escalation is going to be even sharper," said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho. The latest developments sparked Thursday's steep selloff on Wall Street and the confirmation that the S&P 500 was in a correction, just a week after the Nasdaq confirmed the same. "I think Trump 2.0 is nothing like Trump 1.0. This time, the president seems prepared to let U.S. markets and the economy suffer while he implements his 'America first' goals," said Michael Strobaek, global chief investment officer at Lombard Odier.

Typical safe haven assets like gold have meanwhile been beneficiaries of the escalating trade war, as the yellow metal reached a record high of $2,990.09 an ounce on Friday. It was on track to gain 2.6% for the week. Elsewhere, Japan's Nikkei reversed early losses to rise 0.12%. Hong Kong's Hang Seng Index similarly gained 1%, but was headed for a 2.3% weekly decline. China's CSI300 blue-chip index advanced 1.4% and was set to rise 0.6% for the week. The dollar regained some lost ground on Friday thanks to safe haven flows, but was not too far off recent lows as worries of an impending U.S. recession kept pressure on the greenback.

The euro last traded 0.1% lower at $1.0841, while sterling fell 0.05% to $1.2944. The euro has drawn additional support from Germany's fiscal reset plan involving a 500 billion euro fund for infrastructure and sweeping changes to borrowing rules to revive growth and ramp up military spending in Europe's largest economy. Germany's outgoing lower house of parliament will vote on the measures on March 18 before the formation of a new parliament on March 25. Next week will also see a slew of central bank meetings including the U.S. Federal Reserve, as investors await further guidance on the rate outlook amid uncertainty over Trump's trade policies and their impact on U.S. growth and inflation.

"Our assessment is the direction of travel is consistent, rates will go lower. It's just a question of timing, when they get to do it," said Mizuho's Varathan. "I think eventually, the tariffs will be an inconvenience, not an impediment to the Fed cuts, because even if the prices go up it is a negative demand shock and people are worse off, not better off." The dollar was last up 0.3% against the yen at 148.25 , though was set for a slight weekly loss against the Japanese currency as bets for more Bank of Japan rate hikes ramp up. The BOJ also meets next week. In commodities, oil prices were higher after falling in the previous session. Brent futures rose 0.54% to $70.26 a barrel. U.S. West Texas Intermediate crude futures tacked on 0.6% to $66.96 per barrel.

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