FX round-up: South African rand snaps back, cable traders eye talks on Irish border

The South African rand left some traders with a bit of 'whip-saw' as the currency jumped back even after Standard&Poor's downgraded the nation's long-term sovereign debt rating by one notch to BB, or 'junk'.

Triggering the move was the decision, also announced after the close of London trading on 24 November, by Moody's, to keep its rating at its lowest investment grade level, Baa3, albeit while placing them on ratings watch for a possible downgrade.

The latter meant that, for the moment at least, South African debt would not be forced out of Citigroup's benchmark world government bond index.

Reacting to those two decisions, as of 2055 GMT the US dollar was lower by 2.89% to 13.75 rand.

That was despite overall strength in the greenback, with the spot dollar index on the front foot by 0.14% at 92.92 after hitting an intra-day low earlier at 92.496.

Monday's bounce in the US dollar from the two-week lows hit during the previous session came ahead of what analysts at Rabobank termed a "crucial" vote on US Senate Republicans's tax cut bill on 30 November.

"Republicans face a major challenge of trying to pass the comprehensive package of tax cuts. Assuming that the bill is approved, the next step would be for Republican lawmakers to agree on a uniform tax bill that can be signed into law by President Trump by the end of the year.

"It is a very tight schedule and plenty of differences must be reconciled. But if the Republicans and the Trump administration end this year with a major legislative achievement, it would provide the US dollar with at least short-term boost," said Piotr Matys and Jane Foley at Rabobank.

Also helping to boost the dollar was a better-than-expected reading on new US home sales in October, together with somewhat hawkish remarks from Dallas Fed chief Robert Kaplan.

As regards cable, Matys and Foley said the question of the Irish border was the main driver, given Dublin's ability to veto any attempt between Brussels and London to move onto the next phase of talks, on trade.

Then again, the two analysts pointed out that the Irish Taoiseach's own future was also on the line, ahead of a no confidence vote in his deputy the next day.

Against that backdrop, cable was slipping 0.1% to 1.3318.

Dollar/yen was also on the back foot, at 111.11, having hit an intra-session low of 110.85.

Earlier, Morgan Stanley had pared its first quarter 2018 forecast for the currency pair from 116.0 to 114.0, projecting a further decline to 105.0 by the end of 2018, "as risk sentiment wanes but also Japanese reflation continues, leading to market speculation about BoJ exit."