Bias: The USD/LKR is currently bullish-to-range-bound, positioned slightly above the 90-day average and in the upper half of the 3-month range.
Key drivers:
- Rate gap: The U.S. Federal Reserve's expected interest rate cuts contrast with the Sri Lankan Central Bank's focus on stabilizing the rupee, supporting USD strength.
- Risk/commodities: Oil prices remain volatile, which may strengthen the USD as higher energy costs could impact the Sri Lankan economy and further weaken the LKR.
- Economic forecasts: Sri Lanka's import demand and tourism sector challenges are likely to maintain pressure on the rupee in the near term.
Range: The USD/LKR is expected to hold within the recent range, possibly testing the upper extreme as demand for the USD persists.
What could change it:
- Upside risk: A stronger-than-expected job market report could lead to a more aggressive stance from the Federal Reserve, further boosting the USD.
- Downside risk: A significant shift in Sri Lankan monetary policy aimed at stabilizing the currency could bolster the LKR against the USD.
