Rand flat as US inflation comes in slightly higher

The rand was steady against the dollar on Tuesday afternoon after US inflation came in slightly higher than expected but with little indication that inflation was spiralling out of control.

That would necessitate a more hawkish stance from the US Federal Reserve ahead of its interest-rate decision on Wednesday. The market is expecting a 25 basis-points increase.

Higher petrol prices lifted consumer inflation in the US to 2.8% in May from 2.5% in April, slightly higher than the expected 2.7%.

It is the highest inflation rate in the US since February 2012. On a monthly basis, consumer prices edged up 0.2%, the same as in April and in line with expectations.

The dollar showed little reaction as the market took a wait-and-see attitude ahead of the European Central Bank (ECB) meeting on Thursday. The ECB is expected to announce the winding-down of its easing policies before year-end.

Oanda analyst Craig Erlam said that while the US inflation numbers were above the Fed’s 2% target, they were not the central bank’s preferred inflation measures.

“It would be interesting to see what impact it has at the Fed meeting and what, if any, impact it has on the economic projections,” he said.

The core personal consumption expenditure (PCE) index is the Fed’s preferred inflation measure.

The historic summit between the US and North Korea provided little support for emerging market sentiment as the agreements still lacks some detail and could run into significant difficulties going ahead.

At 2.55pm the rand was at R13.1573 to the dollar from R13.1676, at R15.5215 to the euro from R15.5154 and at R17.5974 to the pound from R17.6187.

The euro was at $1.1797 from $1.1785.

Emerging-market bond yields trended higher ahead of the expected Fed rate hike, as markets will be looking for guidance on its future policy.

The R186 was bid at 9.03% from 8.98% and the R207 at 7.65% from 7.625%.

The benchmark US 10-year was last seen at 2.9758% from 2.9529%.