JOHANNESBURG (Reuters) -The South African rand recovered some ground on Wednesday after hitting its lowest level in almost three years after South African data showed a sharp economic contraction and on hawkish comments from U.S. Federal Reserve Chair Jerome Powell.
At 1531 GMT, the rand traded at 18.5200 to the dollar, 0.42% stronger than its closing level on Tuesday. Earlier on Wednesday it hit 18.7200, the lowest since May 2020 during the first months of the pandemic.
The biggest driver was a warning from Powell on Tuesday that U.S. interest rates might need to go up even faster and higher than expected to rein in inflation, ETM Analytics said.
Powell’s comments pushed the dollar to multi-month highs at one point against most other major currencies on Wednesday.
The rand’s slide was compounded by gross domestic product (GDP) figures released on Tuesday that showed South Africa’s economy contracted more than expected in the fourth quarter of last year.
If it contracts again in the current quarter, South Africa will be in a recession.
A survey published on Wednesday showed South Africa’s business confidence fell in the first quarter, dragged down by long hours of power cuts and deteriorating household income.
“SA risks a contraction in GDP in Q1.23, with a recession increasingly likely as the state is unable to turn the collapse in security of supply of electricity around,” Investec analyst Annabel Bishop said.
Shares on the Johannesburg Stock Exchange slumped, mirroring similar moves in global equities as Powell’s comments spooked markets.
South Africa’s broader-all share index closed down 1.04%, while the top-40 index ended 1.11% lower.
The government’s benchmark 2030 bond was stronger, with the yield down 5 basis points to 10.165%.
(Reporting by Nellie Peyton and Bhargav Acharya; Editing by Alexander Winning and Shounak Dasgupta)
