The rand dipped below R8 to the dollar in early morning trade on Tuesday, recouping losses sustained last week.
At 9am, the rand was trading at 7,9334 against the dollar, a gain on Monday’s close of 8,0293. It firmed slightly at 10,7463 against the euro, compared to 10,7730, and against the sterling at 12,3553 compared to 12,4957 previously.
In a currency note, Rand Merchant Bank analysts John Cairns and Nema Ramkhelawan-Bhana said the global uprising against Eurozone policymakers over the weekend appears to have prompted a series of bold reforms to allay market anxiety.
"On the face of it, equity and currency markets appear stronger, but the extent of intraday moves, particularly on dollar/rand, reflects immense uncertainty," Cairns and Ramkhelawan-Bhana said.
Financial Times reports senior officials in the Eurozone are working on overhauling the European Financial Stability Fund (EFSF), giving it the ability to inject capital into banks and purchase bonds of distressed governments on the open market, which would lower borrowing costs and give capitals more time to implement reforms.
Proposals to extend the fund’s firepower and moving the region towards closer economic integration and fiscal union are also in the pipeline.
"Regardless of the plan, the outcome needs to ensure that the financing needs of embattled Eurozone governments are met over the next few years, and that the region’s banking sector is adequately capitalised to avert a systemic event. The upshot is that these measures do not address the structural weakness and lack of competitiveness within the region," Cairns and Ramkhelawan-Bhana said.
The German and Finnish parliaments are due to vote on the proposed changes to the EFSF this week.
