The vulnerable rand was range-bound in early trade on Wednesday‚ as risk assets suffered some losses on new enhanced negative global sentiment ahead of the Greek polls this weekend.

Analysts believed that the risks from Europe would remain a key market driver in emerging economies for the foreseeable future. The upcoming Greek elections are too close to call‚ and the potential for a negative risk event remained considerable.

Standard Bank said the risk-on mood seen earlier in the week had given way to a return to risk aversion as concern over the upcoming Greek elections‚ coupled with resurgent concerns over Spain where banks are seeking a EUR100bn bailout‚ has kept markets on edge.

The bank added that although data flow would be a little heavier today‚ the market’s expectation of a further slowdown in EU industrial production and US retail sales would not be helpful for risk.

“The rand is thus likely to remain at the mercy of global currents‚ with the bias in the short term towards greater volatility and currency weakness‚” the bank said.

“It was quiet overnight and I think that we are going to bounce around until the Greek elections on Sunday.

The rand is much more stable now because the euro gained some ground‚” a local trader said.

At 08:28 the rand was bid at R8.3956 to the dollar from Tuesday’s close of R8.3841. It was bid at R10.4938 to the euro from its previous close of R10.4950 and at R13.0456 against sterling from R13.0599 before. The euro was bid at US$1.2507 from Tuesday’s close of $1.2513.

Meanwhile Dow Jones Newswires reported that the euro was little-changed against the dollar and the yen in Asia on Wednesday‚ with many market participants refraining from making aggressive bets amid concerns about the Spanish banking system and ahead of the closely watched Greek election on Sunday.

"The market is entering a time zone in which people can't take big actions‚" said Minori Uchida‚ chief analyst at the Bank of Tokyo-Mitsubishi UFJ.

At 4:50 GMT‚ the euro was at $1.2491 against $1.2504 late on Tuesday in New York‚ according to EBS via CQG.

Uchida said traders and speculators who needed to unwind euro short positions had already done so‚ while those who built up big euro shorts appeared to be carrying them into the weekend.

"Under these conditions‚ big volatility arising from position adjustment is unlikely until the market gets the Greek political event out of the way‚" Uchida added.

If political parties backing fiscal austerity in Greece get a majority‚ a flurry of huge euro short-covering could send the single currency up to $1.2800‚ he added.

But Uchida and others said further gains were unlikely as concerns over Spain's banking and fiscal problems could persist after the yield on the 10-year Spanish government bond surged to the critical 7 percent level on Tuesday.

The 7 percent level is widely regarded as unsustainable as it has prompted bailouts of eurozone countries like Greece.

Meanwhile‚ the dollar remained solid against the yen after a senior International Monetary Fund official on Tuesday expressed sympathy for Japan's currency intervention.

"If market forces lead to disruptive flows‚ short-term smoothing is something that we would understand‚" said David Lipton‚ IMF deputy managing director‚ in an interview with The Wall Street Journal.

“The IMF official's remarks raised speculation that there might be a backstage deal between Japan and the IMF‚” said Yuji Saito‚ director of foreign exchange at Credit Agricole Bank in Tokyo.

"Caution over currency intervention could heighten on the downside."

Moreover‚ the possibility of further Bank of Japan easing this week was making it difficult to sell dollars against yen‚ Saito said.

Many economists discount that possibility‚ however‚ expecting the BOJ to hold off from taking additional easing action at its two-day policy board meeting ending Friday‚ saving its easing options in case Europe's debt crisis deepened and threatened Japan's fragile economic recovery.

Bonds a tad firmer in quiet trade

The South African bond market was a touch firmer in quiet early morning trade on Wednesday. 

At 08:58‚ the benchmark R157 bond was trading at 6.200 percent from Tuesday’s close of 6.220 percent and Monday’s close of 6.230 percent.

The R207 was bid at 7.485 percent and offered at 7.455 percent from a previous close of 7.480 percent and the R186 was bid at 8.290 percent and offered at 8.260 percent from its close of 8.285 percent.
The rand was bid at R8.4022 against the dollar from Tuesday’s close of R8.3841 and Monday’s close of R8.4625.