USD/LKR Outlook: Bearish, as the rate is below its recent average and near recent lows, influenced by ongoing economic pressures in Sri Lanka.
Key drivers:
• Rate gap: The Federal Reserve’s expected rate cuts contrast with the Central Bank of Sri Lanka's approach to manage currency pressure, weighing on the LKR.
• Risk/commodities: Oil prices remain stable, which helps support the USD while pressuring import costs for Sri Lanka.
• One macro factor: The forecast of sustained import demand and the performance of the tourism sector likely keep the LKR under pressure.
Range: The USD/LKR is expected to hold within its recent range, likely testing the lower end.
What could change it:
• Upside risk: A significant improvement in the US labor market could boost the USD further.
• Downside risk: Any resolute action from the Central Bank of Sri Lanka to stabilize the rupee could strengthen the LKR.
