The current market bias for the USD to LKR exchange rate is bearish. Key drivers include the Federal Reserve's expected rate cuts, which may weaken the USD, and the ongoing depreciation of the LKR despite some growth in tourism and remittances. Sri Lanka's economic growth projections for 2026 are positive, aiming for 6% growth, but the damage from Cyclone Ditwah poses risks to stability.
In the near term, the trading range is likely to remain stable, with movements expected within a small band relative to current prices. This stability is underscored by three months of trading only 0.7% above the average.
An upside risk could arise from stronger-than-anticipated economic recovery in Sri Lanka, bolstered by tourism and remittances. Conversely, a downside risk stems from continued market volatility surrounding the Federal Reserve's monetary policy decisions, which may exert further pressure on the LKR.
