Halloween and the Return of Risk

Ever wondered where Halloween really began? It started with huge fires.

Two thousand years ago, during Samhain, the Celts lit huge bonfires believing the line between the living and the dead had blurred. Spirits wandered, crops failed, and fortunes changed overnight. People tried to stay safe by leaving food outside and keeping the fires burning.

Such was the case with KSE100. Every time we pretend risk is dead, it rises again — like the undead.

During the last 7 trading sessions, it collapsed by almost 12,000 points, and as soon as halloween finished, we saw a mega rally of 5,000 points. When volatility is this high in an upward-trending market, the rule is simple: do NOT trade, do NOT leverage.

PKR edges higher
USDPKR finally breached the 281 level, closing at 280.91 yesterday. Our initial target of 280.50 is well within reach, and a short-term move towards 278 can’t be ruled out once the IMF Board approves the tranche.

This PKR strength is policy-made, not market-made. Growth is being suppressed to contain imports and create populist optics. Exporters are feeling the heat as their international buyers are super sensitive on pricing and remitters are looking for alternate approaches to get some premium on their remittances. A strong rupee rarely helps either exports or remittances and a tariff centric opportunity to increase forex inflows may go begging.

PKR 2026 Forecasts
Many exporters ask about 2026 forecasts. We wish we could give them some good news.

Our projections show an average of 284/$ for 2026, with December closing near 289/$. That’s a fair distance from the 292/$ rate used by the MoF and the IMF for budgeting.

A trapped forward market
Exporters face a classic catch-22. They want to sell proceeds forward, but premiums are low — about 80 paisa for one month and 275 paisa for three months. The reason is the central bank’s ongoing buy-sell swaps to fund reserves and meet import payments.

Tresmark Research expects some improvement in premiums next week as import pressure eases and the central bank works to bring the short forward book below $2 billion before year-end in line with IMF target. The recovery, however, will be slow. Large banks have already booked Rs 5–6 billion in FX profits this year are in no rush to take new positions.

Money Market
The government accepted Rs 1.34 trillion in this week’s auction against bids of over Rs 3 trillion. Appetite remains strong as banks continue to park surplus liquidity in government paper while private-sector credit stays muted. Even a small shift of this liquidity toward productive sectors could lift GDP growth and create much-needed jobs.

Going forward, government borrowing needs may cool once the IMF tranche is released, which is why banks are keen to maximise inventory now. With easy OMO funding with positive carry, this remains a low-risk trade.

For now, analysts don’t expect the SBP to follow the Fed’s recent twin 25bps cuts. A policy rate reduction in December still looks unlikely, though yields could ease as banks continue to hoard government securities to the limit.

Global Highlights
• The Dollar’s Dominance Returns
The greenback ended the week firm, climbing to a three-month high as policy divergence widened and almost touching 100 (USD Index). The Fed’s hawkish cut and a fragile US–China truce helped fuel demand for the dollar, while the euro and yen stayed under pressure. Powell admitted “strongly differing views” among FOMC members. Despite two earlier cuts, the Fed may pause again in December, even as markets still price a two-thirds chance of another 25bps reduction. The Fed will halt balance-sheet reduction in December, signalling a pause in quantitative tightening.

• BoJ Stays Silent, Yen Weakens
Tokyo CPI accelerated to 2.8%, but the Bank of Japan offered no guidance on rate hikes. Verbal interventions failed to steady the yen as hedge funds kept long USDJPY positions toward the 160 zone. Pound slid below 1.32 on fiscal concerns and speculation of another BoE rate cut later this year.

Projections
USD/PKR
• 1 Week: 280.50
• 1 Month: 280.00
• 1 Quarter: 281.00
EUR/USD
• 1 Week: 1.1527 (Bearish)
• 1 Month: 1.1822 (Bullish)
• 1 Quarter: 1.1907 (Bullish)
GBP/USD
• 1 Week: 1.3090 (Neutral)
• 1 Month: 1.3474 (Bullish)
• 1 Quarter: 1.3572 (Bullish)
USD/JPY
• 1 Week: 154 (Sideways)
• 1 Month: 147.89 (Bearish)
• 1 Quarter: 145.80 (Bearish)