The South African rand weakened to 16.5 per US dollar as investors balanced stronger-than-expected domestic inflation against rising oil prices, which could further fuel price pressures. South Africa's annual inflation accelerated to 5.0% in June, the highest in two years, from 4.5% in May and above market expectations of 4.7%, driven mainly by transport and housing and utilities. Core inflation also rose to 4.1%, its highest level since September 2024. With both headline inflation and the core measure remaining above the South African Reserve Bank's 3% target, markets continue to expect the central bank to raise its benchmark interest rate by 25 basis points to 7.25% on Thursday. Meanwhile, oil prices climbed to their highest level in more than a month as Middle East tensions intensified after US President Donald Trump warned of further strikes on Iran and pledged retaliation if Iran-backed Houthi rebels disrupt shipping through the Red Sea.