The USD/PKR exchange rate is currently range-bound, as it sits just below the 90-day average and within the lower half of its 3-month range.
Key drivers:
- Rate gap: The US Federal Reserve's potential shift towards rate cuts contrasts with the State Bank of Pakistan's efforts to stabilize the PKR, creating differing monetary policies that influence the exchange rate.
- Risk/commodities: Recent declines in global oil prices could impact the Pakistani economy more than the US, as a weaker PKR generally makes oil more expensive for local consumers and businesses.
- Inflation outlook: Pakistan's inflation is projected at 4.4%, indicating that while prices are stable, any unexpected increase could exert pressure on the PKR in the medium term.
Range: The USD/PKR is likely to hold steady within its recent trading range, possibly drifting as economic data emerges.
What could change it:
- Upside risk: A significant tightening in US monetary policy could attract USD inflows, improving its strength.
- Downside risk: Any escalation in geopolitical tensions or unexpected domestic economic setbacks could lead to a further depreciation of the PKR.
