South Africa's rand weakens as Fed's upbeat economic view boosts dollar

South Africa's rand weakened early on Thursday, as the dollar firmed after the U.S. Federal Reserve painted a favourable economic recovery picture but stopped short of offering concrete signals on further stimulus.

At 0620 GMT, the rand traded at 16.4375 per dollar, 1% weaker than its close on Wednesday.

The dollar index, which tracks the currency against a basket of rivals, rose after the Fed signalled on Wednesday it expected the U.S. economic recovery from the coronavirus crisis to accelerate, with unemployment falling faster than the central bank's forecast in June.

Focus now shifts to the South African Reserve Bank's (SARB) interest rate decision later in the day.

The country's central bank has cut rates by a total of 300 basis points this year to support an economy that was in recession before COVID-19 hit.

"In light of the abysmal Q2 GDP reading, a more favourable external environment, and weak growth prospects, we now expect the SARB to pull the trigger with a 25-bps rate cut," analysts at NKC African Economics said in a note.

Economic output recorded its largest contraction ever in the second quarter as a strict lockdown shut down most activity.

In fixed income, the yield on the benchmark government bond was flat at 9.235%.

(Reporting by Olivia Kumwenda-Mtambo; Editing by Alex Richardson)