Rand on the ropes: How political and economic turmoil is shaping South Africa’s currency

February brought back an unwelcome guest to South Africa: loadshedding. After months of uninterrupted power, the nation once again found itself grappling with rolling blackouts, adding pressure to an economy already facing significant challenges. Yet, domestic energy issues are just one piece of the puzzle – a mix of local and international factors has placed the South African Rand  under considerable strain.

Global attention turned to South Africa after the signing into law of the contentious Expropriation Act by President Cyril Ramaphosa in January, prompting sharp commentary from US President Donald Trump. His remarks sparked fears of potential sanctions or severed ties with the US, triggering a significant selloff of the Rand. While the currency later rebounded as investors reassessed the likelihood of concrete action, the situation remains fluid, highlighting the delicate balance the ZAR must navigate amid political unpredictability.

Domestically, political fragmentation added further instability. The highly anticipated national budget, set for 19 February 2025, failed to materialise as South Africa’s Government of National Unity clashed over proposed policy changes. Reports suggest the Democratic Alliance blocked proceedings in protest of a proposed 2% VAT hike – an indirect tax that affects all South Africans. The budget delay initially weakened the Rand by over 1%, though the impact softened as markets digested the situation. Still, the currency has struggled to regain ground, reflecting the broader uncertainty surrounding South Africa’s political and economic future.

By the numbers: The Rand’s performance

The Rand opened the month trading at 18.68 against the USD, 23.17 against the GBP and 19.34 against the EUR. As of the latest market update, the currency sits at 18.44 against the USD, 23.63 against the GBP and 19.67 against the EUR. This volatility underscores the sensitivity of the ZAR to both local and global developments, with each new political or economic twist sending ripples through the market.

Global uncertainty adds fuel to the fire

Turning to the global stage, geopolitical instability has cast a long shadow over financial markets. Much of this uncertainty stems from the US, where Trump, in his first month back in office, issued a flurry of executive orders – some of which were reversed just days later. This erratic policy approach has created further instability from the world's largest economy, amplifying risk sentiment across global markets and adding to the Rand’s already turbulent environment.

Global market factors

The USD

In February 2025, key US economic data releases had a significant influence on foreign exchange markets. Non-farm payrolls missed expectations sharply, with only 143,000 jobs added versus a forecast of 205,000, signalling potential labour market weakness despite a slight dip in unemployment to 4%. Inflation data surprised to the upside, with monthly core inflation rising to 0.4% (vs. 0.3% expected) and headline inflation at 0.5% (vs. 0.3% expected), likely intensifying speculation about future Federal Reserve policy. The release of the FOMC minutes provided further insight into policymakers' reactions to persistent inflation pressures and labour market trends, shaping market sentiment and driving currency volatility.

Compared to the ZAR, we have seen the USD weaken by 0.86% against the ZAR at the time of writing.

The GBP

In February 2025, key UK data releases influenced foreign exchange markets, with the Bank of England (BoE) cutting interest rates to 4.5%, aligning with expectations and reflecting efforts to balance growth and inflation. GDP growth surprised to the upside, with Q4 GDP rising 0.1% QoQ (vs. -0.1% forecast) and 1.4% YoY, signalling resilience in the economy. However, inflation accelerated to 3% YoY in January, surpassing forecasts and adding complexity to the BoE's rate path. Strong retail sales and steady unemployment added mixed signals, contributing to market volatility as traders recalibrated rate expectations and growth prospects.

Compared to the ZAR, we have seen the GBP strengthen by 0.76% against the ZAR at the time of writing.

The EUR

In February 2025, key Eurozone data releases impacted foreign exchange markets, with inflation holding steady at 2.5% YoY, slightly above expectations, while core inflation remained elevated at 2.7%. Retail sales disappointed, falling 0.2% MoM, signalling weak consumer demand despite a 1.9% YoY increase. GDP growth stagnated, with Q4 growth at just 0.1% QoQ, reflecting sluggish economic momentum. These mixed signals, alongside deteriorating industrial production and cautious consumer confidence, likely heightened market speculation about the ECB’s next policy moves, contributing to FX volatility as traders weighed inflation persistence against faltering growth.

Compared to the ZAR, we have seen the EUR weaken by 0.52% against the ZAR at the time of writing.

Get our Daily Rand Report delivered straight to your inbox every weekday to keep on top of everything happening with the ZAR.