The rand has taken a turn for the worse after fresh signals from the United States suggested interest rates there could stay higher for longer.
This is the feedback from Investec Chief Economist Annabel Bishop, who said the US Fed’s stance has strengthened the dollar and put pressure on emerging-market currencies such as the rand.
The shift followed the release of minutes from the late-January meeting of the Federal Open Market Committee, where policymakers debated when to cut rates and the possibility that further hikes may still be necessary.
The discussion unsettled markets that had grown increasingly comfortable with the idea of easing monetary policy in the world’s largest economy.
Financial market sentiment had already been volatile. Risk appetite improved throughout most of 2025, particularly in the fourth quarter of the year.
However, that mood reversed at the end of January as investors reacted to the nomination of Kevin Warsh as the next Federal Reserve chair.
Warsh is widely viewed as hawkish on inflation, which has caused investors to rethink expectations of rapid interest-rate cuts.
Bishop noted that the meeting minutes reinforced those concerns. Policymakers signalled that inflation risks remain stubborn and could justify tighter policy if price pressures fail to ease.
“Several participants indicated the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation remains at above-target levels,” the minutes stated.
Officials also expressed confidence in the labour market, reducing the urgency for stimulus.
“The vast majority of participants judged that downside risks to employment had moderated in recent months while the risk of more persistent inflation remained, and some commented that those risks had come into better focus.”
“Several participants cautioned that easing policy further in the context of elevated inflation readings could be misinterpreted as implying diminished policymaker commitment to the 2% inflation objective, perhaps making higher inflation more entrenched.”
The rand remains sensitive
They added that additional policy easing may not be warranted until there is a clear indication that the progress of disinflation was firmly back on track.”
The effect on currencies was immediate. The dollar strengthened following the release, while the rand weakened back beyond R16.00/USD.
Higher US interest rates typically attract global capital flows into dollar assets, leaving emerging-market currencies vulnerable.
Bishop noted, however, that there was conflicting political pressure in Washington.
US President Donald Trump has indicated he wants lower borrowing costs, and Warsh has argued that technological productivity gains from artificial intelligence could allow easier policy.
But that view is not universally shared among central bankers, and markets appear unconvinced that rapid cuts are imminent.
Investors reacted only modestly overall and are now in a wait-and-see mode. The next Fed meeting in mid-March is expected to leave rates unchanged.
However, updated projections will offer insight into policymakers’ outlook for inflation, growth and borrowing costs. Another meeting follows in late April, before the leadership transition in May.
Market pricing still points to two US rate cuts this year—one around July and another near December—although analysts said traders have not fully digested the latest minutes.
With uncertainty surrounding the incoming chair’s first meeting in June and committee members not necessarily aligned with new leadership, expectations have shifted further out.
For South Africa, Bishop noted that uncertainty over US rates keeps global capital cautious, meaning the rand is likely to remain sensitive to shifts in US monetary policy well into the second half of the year.
