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Rand Falls almost 1% as Fed Outcome seen Posing a Big Risk

JOHANNESBURG, July 26 (Reuters) - The South African rand slumped on Wednesday, as analysts said the outcome of a U.S. Federal Reserve policy meeting later in the day could leave it open to losses after strong gains this month.

At 1330 GMT, the rand traded at 17.7000 against the dollar , more than 0.8% weaker than its previous close, after earlier being down almost 1% against the greenback.

"(There is) quite a lot of caution in the market because of the Fed rate decision tonight," said Greg Davies, head of wealth at asset manager Cratos Capital.

Rand Merchant Bank said in a morning briefing that after recent gains "the rand is stretched too far". Referring to the Fed's interest rate announcement later on Wednesday, it said "event risk is huge tonight" and that a sharp fall in the rand should not be ruled out.

Markets are betting on a 25-basis-point hike from the Fed on Wednesday, but they are split on the odds of another later in the year. If the Fed's language is hawkish it could boost the dollar and leave emerging market currencies like the rand exposed.

The rand has gained more than 6% against the greenback so far in July, helped by dollar weakness in the first half of the month, a commitment from Chinese policymakers to support their economy, and foreign buying of South African government bonds.

Kevin Lings, an economist at asset manager Stanlib, linked the foreign bond-buying to a decline in South African inflation and a decision by the Reserve Bank last week to leave its main interest rate on hold.

"(This) reflects the power of a credible central bank," he wrote on Tuesday on X, the social media platform formerly known as Twitter.

On the Johannesburg Stock Exchange, the blue-chip Top-40 index was about 0.4% weaker than its previous close. South Africa's benchmark 2030 government bond was slightly stronger, with the yield down 2 basis points to 10.265%.

Reporting by Tannur Anders Editing by Alexander Winning, Kirsten Donovan

Source: Reuters

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