Data out of the US still seems to hold sway on how the currency markets function. Some stronger US data last week
helped the USD index end the week on a firmer footing ahead of this week’s FOMC decision, which will likely see
the Fed keep interest rates unchanged. Add to that the Trump administration’s threat of tariff imposition on
Colombia followed Colombia’s turning away two military aircraft filled with illegal immigrants being deported back
to their country of origin. Media sources have since confirmed that Colombia has agreed to accept its citizens back
into the country, somewhat defusing the situation.
• Nonetheless, the threat of sanctions and tariffs is real, and the Trump administration is ensuring that the message
gets through that its Southern border will no longer be the thoroughfare it was for the past five years. This did boost
the USD initially, but now that the situation is being defused, the momentum behind the USD might subside, leaving
the focus more squarely on the Central Bank decisions later this week. The Fed is expected to keep rates
unchanged, which contrasts with the SARB, which is expected to cut rates by a further 25bp.
• In recent months, the Central Bank’s decisions have had little bearing on the yield curve, which, in the case of the
US, has continued to steepen and rise. This means that the spread of domestic bond yields over their US equivalent
has consolidated much tighter, reducing the degree of yield attraction for SA markets and the ZAR.