USD/LKR Outlook:
The USD/LKR outlook is slightly positive, but likely to move sideways as it hovers just above its 90-day average and remains near the upper end of its recent range. Market dynamics are mixed with geopolitical tensions supporting the USD.
Key drivers:
• Rate gap: The US Federal Reserve's policies may continue to support the USD's strength while the Central Bank of Sri Lanka maintains a stable interest rate to manage inflation.
• Risk/commodities: Oil prices are rising, causing higher global demand for USD as importers need to convert local currencies to buy oil priced in USD.
• One macro factor: The ongoing geopolitical conflict has rejuvenated safe-haven demand for USD as markets brace for economic impact.
Range:
Expect the USD/LKR to drift within its recent range, with potential to test the upper limits.
What could change it:
• Upside risk: A significant escalation in the geopolitical conflict could further boost USD demand.
• Downside risk: A stronger-than-expected recovery in Sri Lanka's economic indicators could support the LKR.