USD/LKR Outlook:
Slightly positive, but likely to move sideways, as the rate trades near its recent average and lacks a strong current driver.
Key drivers:
- Rate gap: The Federal Reserve's decision to hold interest rates steady may support the USD, contrasting with the Sri Lankan Central Bank's active involvement in the market.
- Risk/commodities: The recent decline in global oil prices could reduce inflationary pressures, aiding the LKR but adding uncertainty for the USD's strength.
- One macro factor: Sri Lanka continues to grapple with long-term economic recovery, which is projected to be moderate, complicating the outlook for the LKR.
Range:
Expect the USD/LKR to test the recent range without making significant directional moves.
What could change it:
- Upside risk: A stronger-than-expected report on U.S. job growth could boost the USD further.
- Downside risk: Any unfavorable changes in Sri Lanka's external economic conditions could lead to further depreciation of the LKR.
