The rand has hit its worst level ever against the euro, trading at R21.81/€ on the morning of 9 April after hitting R21.93/€ in overnight trading. 

This is the first time in history that the rand has traded above R21 to the euro. Its previous weakest level was during the Covid-19 pandemic when it traded at R20.63/€. 

The local currency has been hit by a double whammy in recent weeks from the fallout following the passing of a contentious Budget and United States President Donald Trump’s unveiling of his tariff plan. 

Initially, the weakening was unique to the rand, with investors fearing the collapse of the Government of National Unity (GNU) after the Budget vote on 2 April. 

It is still unclear whether the DA will remain part of the GNU or if the ANC will seek political support elsewhere. 

The JSE All Share Index fell 4.5% in a single day due to this fallout, with financial and mining stocks particularly hard hit, along with a weaker rand. 

This weakening was unique to the rand, which declined in value versus other emerging market currencies on the afternoon of 2 April. 

Late that evening, the rand was caught up in a broad selloff of emerging market assets following Trump’s revelation of significant tariffs on goods imported into the United States. 

This accelerated the rand’s weakening versus major currencies such as the US dollar, British pound, and the euro as uncertainty hit global markets. 

Investors flocked to ‘safe-haven’ currencies such as the Japanese yen and Swiss franc, with the dollar weakening slightly. 

As a result, many investors fled from riskier emerging market assets, including the rand, in search of safety. 

In the past few days, the rand has hit its worst level versus the British pound, trading at over R25/£, and has flirted with its weakest-ever level versus the dollar. 

Early on the morning of 9 April, the rand crossed R21 to the euro, its weakest level ever against the European currency. 

As of 09:00, the rand is trading at R21.83/€ after hitting R21.93/€ in overnight trade. 

This rapid weakening of the rand has severe implications for South Africa. A weaker currency will increase the cost of importing goods and likely result in elevated inflation. 

Euro stands to benefit from tariffs

The euro has emerged as an unlikely winner from the Trump administration’s plan to reorganise the global trade order. 

It has surged to its highest in six months versus the dollar this week, with its biggest intraday gain since 2015 on Thursday after Trump unveiled tariffs that were more aggressive than expected.

This is partly due to the euro being the most used currency for global trade after the dollar and having the deepest and most transparent capital markets outside of the United States. 

The European Union (EU) has also been quick to announce its willingness to make a deal with Trump while improving relations with China and India to diversify its export destinations. 

Trump’s tariffs are also likely to push the United States into a recession, weakening the dollar against major currencies. 

Director at Citadel Global Bianca Botes explained that yesterday, after a brief reprieve, the markets faced yet another round of carnage. 

US tariffs announced last week took effect at midnight, with any hope for delays dashed and the brief optimism in financial markets being replaced by fear. 

Trump also slapped China with additional tariffs, raising United States tariffs on Chinese goods to 104%. 

Other countries, including those in the EU, Japan, Vietnam, South Korea, and Taiwan, face tariffs of up to 46%. 

While Trump justified these measures as necessary to address “unfair trading practices”, markets are experiencing increased volatility, with stocks declining and investors seeking safer assets. 

There are growing fears that these tariffs could lead to a recession in 2025, prompting expectations that the Federal Reserve may need to cut interest rates to mitigate the effects on the US economy. 

This is expected to weaken the dollar against other major currencies, such as the euro, as the interest rate differential between the United States and the EU is likely to widen. This will make European assets relatively more attractive to investors. 

Bloomberg reported that major investment banks, such as Citigroup in the US, have revised up their euro target value as sentiment towards the currency turned bullish for the first time in four years. 

It marks a shift from just two months ago when many in the market anticipated a euro slide to parity versus the greenback on the risk that tariffs would force the European Central Bank to cut interest rates more aggressively. 

Now, investors are more concerned about Trump’s policies potentially harming the US economy and reversing sizeable inflows into dollar assets of recent years.

So far, US markets have borne the brunt of the pain stemming from Trump’s historic import taxes. 

The price action goes against well-established market mantras that the dollar should benefit and the euro decline during bouts of global risk aversion.

While traders are pricing in additional easing from the European Central Bank, they now see it making fewer cuts than the Federal Reserve.