FX.co ★ South African Rand Weakens Despite Hotter-Than-Expected Inflation

The South African rand weakened to 16.5 per US dollar as investors weighed stronger-than-expected domestic inflation against rising oil prices, which could intensify future price pressures. Annual inflation in South Africa accelerated to 5.0% in June, the highest level in two years, up from 4.5% in May and above market forecasts of 4.7%. The increase was driven mainly by higher transport costs and rising housing and utilities prices. Core inflation also climbed to 4.1%, its highest reading since September 2024.

With both headline and core inflation exceeding the South African Reserve Bank’s 3% target, markets continue to anticipate a 25-basis-point increase in the benchmark interest rate to 7.25% at Thursday’s policy meeting.

At the same time, oil prices advanced to their highest level in more than a month as geopolitical tensions in the Middle East escalated. This followed warnings from US President Donald Trump of further strikes on Iran, along with a pledge to retaliate if Iran-backed Houthi rebels disrupt shipping traffic through the Red Sea.