Key points:

• The US dollar appreciated slightly this week, but its downtrend from January highs remains intact. Trump’s policies accelerate a US downturn, pushing the Fed towards pausing quantitative tightening and cutting rates, correcting the overvalued USD.

• ZAR’s undervaluation narrows post-April sell-off, with recovery potential should GNU and fiscal uncertainties clear. Without reforms, ZAR risks sustained weakness.

• South Africa’s R75bn tax shortfall and excessive spending fuel a fiscal crisis. Scrapped VAT hike and no expenditure cuts show weak discipline, testing GNU stability and risking fiscal collapse without bold reforms.

• VIX drops from April highs with tentative US-China trade war de-escalation, but uncertainty keeps volatility high, pressuring ZAR. Despite bond inflows and risk appetite, the ZAR weakened due to GNU and fiscal policy ambiguity.