USD/LKR Outlook:
The USD/LKR exchange rate is likely to move sideways, trading near its three-month average with mixed signals from both U.S. and Sri Lankan economic developments.
Key drivers:
- Rate gap: The U.S. Federal Reserve's interest rate policies have strengthened the dollar against the LKR, with ongoing adjustments currently in focus.
- Risk/commodities: Ongoing geopolitical tensions support demand for the safe-haven U.S. dollar while impacting LKR stability due to rising import costs.
- One macro factor: Sri Lanka's efforts to achieve a 5% inflation target by the latter half of 2026 indicate potential economic recovery, which could support the LKR.
Range:
The USD/LKR is expected to hold within its recent trading range, exhibiting stable movement without significant breakouts in either direction.
What could change it:
- Upside risk: A significant rise in U.S. economic indicators or further geopolitical tensions could bolster the U.S. dollar's strength.
- Downside risk: Any acceleration in Sri Lanka's currency depreciation or worse-than-expected inflation data could weaken the LKR further.
