USD/LKR Outlook:
The USD/LKR pair is likely to increase as it currently trades above its 90-day average and is near recent highs. The ongoing geopolitical tensions are driving investors towards safe-haven assets like the US dollar.
Key drivers:
• Rate gap: The US Federal Reserve's policies are more aggressive compared to the Sri Lankan Central Bank, supporting the dollar's strength.
• Risk/commodities: Rising oil prices due to geopolitical uncertainties are increasing global demand for USD, impacting the LKR negatively.
• One macro factor: Sri Lanka's recent struggle with currency depreciation continues to weaken the LKR, influencing its performance against the USD.
Range:
The USD/LKR is expected to test the upper end of its recent 3-month range as the safe-haven demand persists.
What could change it:
• Upside risk: A significant escalation in geopolitical conflicts could push the USD higher.
• Downside risk: Any strengthening of economic indicators from Sri Lanka could bolster the LKR.