The South African rand weakened in early trade on Wednesday as investors waited for the US Federal Reserve’s interest rate decision later in the day, watching for clues on the economic fallout from the Iran war as peace talks remain stalled.

At 0618 GMT the rand traded at 16.5550 against the dollar, about 0.2% down from its previous close.

Diplomatic efforts to end the Iran conflict have stalled, with US President Donald Trump rejecting Tehran's latest proposal and saying Iran had told Washington it was in a "state of collapse" while working out its leadership.

The nearly two-month war in the Middle East has led to soaring fuel prices, eroding consumer confidence to a record low and wiping out market pricing for rate cuts.

Investors expect the Fed to hold interest rates steady at the end of its two-day meeting later in the day.

Nedbank economists said in a research note that markets broadly expect policy rates to be held steady, reflecting a continued "wait-and-see" approach amid elevated geopolitical uncertainty and mixed inflation dynamics.

"The Fed is expected to keep the Fed funds target rate unchanged at 3.75%, as disinflation progress remains uneven and activity data continues to surprise modestly to the upside," the bank's economists said.

South Africa's benchmark 2035 government bond was flat in early deals, with the yield at 8.76%.