Recent developments and forecasts suggest a mixed outlook for the USD to LKR exchange rate. Analysts indicate that the US dollar (USD) is currently experiencing downward pressure, largely due to growing expectations of a Federal Reserve rate cut, driven by signs of a weakening labor market. Private employers in the U.S. reported an average job loss of 11,250 per week for the week ending October 25, which has heightened expectations that the Fed may pivot towards a more accommodative monetary policy soon. This dovish sentiment is expected to keep the USD under pressure in the short term.
As of late October 2023, the USD to LKR exchange rate has fallen to near seven-day lows, currently hovering around 304.1 LKR, which is just slightly above its three-month average of 302.5 LKR. The exchange rate has shown relative stability over the last few months, trading within a tight 2.1% range, suggesting a lack of volatility in the short-term outlook.
On the other hand, the Sri Lankan rupee (LKR) has encountered challenges in 2025, with a reported 1.7% depreciation against the USD in January 2025. However, the Central Bank of Sri Lanka (CBSL) is actively intervening by purchasing USD to stabilize the LKR amid increased import demand. Furthermore, the outlook appears cautiously optimistic due to a projected surplus in the current account, bolstered by strong remittances and a rebound in tourism.
Despite these positive external sector indicators, the CBSL has issued warnings regarding potential future depreciation of the LKR, particularly if foreign inflows do not meet the requirements for outflows. Analysts emphasize that while current interventions might provide temporary stability, long-term sustainability of the LKR's value against the USD will depend on increased foreign direct investment.
In summary, the USD to LKR exchange rate is currently under influence from both U.S. monetary policy developments and local economic conditions in Sri Lanka. Currency market participants should remain vigilant to ongoing Fed statements and CBSL actions, as these will be pivotal in shaping the trading environment for the USD and LKR in the coming weeks.
