Johannesburg - The rand was sharply softer
against the dollar in late afternoon trade on Monday, in spite of the
euro - which the local currency tracks - staging a mild recovery against
the greenback.
"If you look at what has happened in perspective, you'll see
that the euro/dollar move has been a bit overdone," a market analyst
said.
"In two sessions we saw the euro/dollar drop from 1.41 to
136.50 at the end of last week and what's happened now appears to be a
technical bounce."
He added that despite the mild recovery, it was too early to turn bullish on the euro.
"And it's difficult to be optimistic about the rand today as Wall Street futures are presently trading lower."
At 15:38 local time, the rand was bid at 7.3574 to the dollar
from its previous close of 7.2771. It was bid at 9.9756 to the euro from
9.9343 before, and at 11.5875 against sterling from 11.5538 previously.
The euro was at $1.3621 from $1.3654 before, having been bid as low as $1.3498.
Meanwhile Dow Jones Newswires reported that currency markets
steadied after hefty moves in Asian and early European trading on
Monday, with the euro bouncing off recent lows against the dollar and
yen. However, the common currency remained weak amid fears that the eurozone
sovereign debt crisis was spiralling out of control.
After dropping to a seven-month low under $1.35 in Asia, the
single currency staged a mild recovery across the board in European
hours, rising back above the key $1.36 against the dollar while
bouncing off 10-year lows against the yen.
But with fears growing about Greece's ability to avoid a
default this pickup was unlikely to last, market participants said.
"At present the euro is under pressure on two fronts: the
deteriorating debt crisis on the one hand and the European Central Bank (ECB),
which has become excessively entangled in the resolution of the crisis
on the other," currency strategists at Commerzbank AG wrote in a note to
clients.
"There is no solution in sight," they said.
Heightened worries about the eurozone debt crisis had gripped
financial markets on Monday with safe haven German bund yields falling
to new record lows, while bond prices from highly indebted eurozone
countries declined.
The surprise resignation on Friday of Juergen Stark from the
ECB executive board and comments from German
Economy Minister Philipp Roesler that Europe could no longer rule out an
"orderly default" for Greece were behind the negative tone.
That, on top of expectations that Moody's Investors Service could downgrade French banks this week, led a rout in French stocks and
the cost of insuring them against default soared to their highest-ever
levels.
For now, the euro had some respite from the nerves as the
market consolidated from recent losses, but the market remained highly
sensitive to eurozone headlines this week, market participants said.
"Irrespective if US data comes in better than expected, the
eurozone debt crisis is expected to dominate this week," said Jane
Foley, a currency strategist at Rabobank. "Market nervousness is going
to be extremely high," she said.
Against this backdrop all eyes remained on the yen and
whether authorities there responded to appreciation pressures, as the
Japanese currency - treated as a safe retreat in times of stress -
pushed higher across the board.
"The Swiss National Bank policy can be described as
protectionist and it's possible that will initiate a greater response
from other central banks, and the first in line is the Japanese," said
Foley.
Earlier on Monday, the euro fell to a fresh 10-year low of 103.900 against the yen, before recovering.
Euro derivatives showed that investors were bracing for very
large moves over the next month, with so-called implied volatilities
reaching the highest level since June 2010.
The rout was not limited to the euro. Other currencies with
close links to investor sentiment - particularly the Australian and
Canadian dollars - fell sharply, while emerging market currencies also
tumbled, Dow Jones Newswires said.