Rand slips as hot US inflation lifts Fed rate hike odds

The South African rand weakened sharply on Wednesday, Oct 14, after a hotter-than-expected US inflation reading boosted expectations that the Federal Reserve could raise interest rates later this month.

At 1415 GMT, the rand traded at 16.62 against the dollar, about 0.8% weaker than its previous close.

Dollar index climbs

The dollar index, which measures the greenback against a basket of currencies, rose to 102.87, up 0.7% on Tuesday’s close.

The US Consumer Price Index rose 0.6% last month after climbing 0.4% in August, the Labor Department’s Bureau of Labor Statistics said on Wednesday.

Fed rate odds rise

Markets see about a 44% chance of a US rate hike this month, up from about 22% before the inflation data. They are pricing a 95% probability of an increase in December, according to CME’s FedWatch Tool.

Rand looks abroad

With no major domestic data due, the rand takes its cue from global developments, particularly US economic indicators and geopolitical events.

On the Johannesburg Stock Exchange, the Top-40 index was last down 1%. South Africa’s benchmark 2035 government bond strengthened, as the yield fell 2 basis points to 8.74%.

The rand’s slide shows how US inflation data can move currencies far beyond Wall Street. The report did not mention Nigeria or the naira.