The Return of Plan D

Tresmark: Remember when our note ‘Danda is coming’ went viral about 2 years ago. Not much has changed since then. The reliance on strict administrative measures is still the go to strategy. Remember:
– In an overly regulated market, speculative forces and black markets will always develop
– Developed markets circumvent this by promoting free markets with robust oversight

Since we never made a Plan A (which would require reforms), the Plan D of intimidation and forcing the market to accept a rate succeeds, but only for a limited time. At this point, interbank and open markets have come down by 2 Rupees to close at 283.05 and 286.55 respectively.

Outlook
Traders are also expecting a meeting of officials with treasuries of banks on Monday, which may shave off another 2-3 Rupees of the dollar. As a result, we are expecting the following
– USDPKR to stabilise around 282/$ with one off runs to 280/$
– temporary relief in dollar liquidity as some selling comes through
– Central Bank to continue buying dollars from the market

There was strong selling by exporters in the forward market, which we see will continue till Monday. If ready levels stay above 282/$, exporters should look to book forwards in the shorter terms.

Monetary Policy
Tresmark polls show traders heavily tilted towards a rate cut, but split over size of rate cut where
– 45% expect a 50bps rate cut
– and 32% expecting 100bps

The Grand Pivot
The Euro has climbed 13% against the dollar in 2025—driven by global reserve diversification and fears over Trump’s economic unpredictability and the Fed’s waning independence. The USD Index has dropped from 110 to 97.70 with analysts forecasting it to drop to early 90s.

Morgan Stanley expects European investors to pull $4 trillion out of US dollar assets by 2026. That shift alone is lifting Euro demand. Trump’s 15% tariff deal with Japan signals a similar agreement with the EU, likely cutting auto tariffs also. But even at 15%, the levy could strain the EU’s already fragile economy.

Meanwhile, gold has surged past $3,300 an ounce as central banks seek safer, non-dollar stores of value. The same logic is benefiting the Euro—now increasingly used in trade finance, syndicated lending, and offshore capital markets. With $5 trillion in US Treasuries, Asian central banks are actively diversifying. Gold is their hedge. The Euro is their alternative.

The dollar’s dominance isn’t over—but the world is clearly hedging its bets.