- September 20, 2025
- Posted by: Tresmark
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Did you know that buried in the NATO treaty is one exceptional line: “An armed attack against one shall be considered an attack against all.”
That single clause — Article 5 — reshaped Europe. Turning deterrence to dollars. Investors returned, aid started to pour in, and businesses flourished. History reminds us that defence pacts are rarely just about armies. NATO revived Europe’s economy, Japan grew under a US shield, and even CENTO shaped aid flows.
This is why the recent Pakistan Saudi Pact is a huge shift. What was informally in place for decades is now formalised, showing that Saudi Arabia feels it needs more than oil diplomacy — it needs real deterrence.
Economic Lens on the Pakistan–Saudi Pact
In reality, it is economic signalling. Markets will read it as a backstop of confidence and GCC capital.
– Confidence Signal: Formal Saudi backing lowers perceived sovereign risk, reassuring FX and bond markets.
– Selective Capital Flows: Broad FDI may not follow, but bilateral support — loans, oil facilities, project finance, gains strength.
– Fiscal Trade-off: Deeper defence ties may raise spending, but co-production could spark local industrial activity.
– Regional Risk Premium: Similar GCC pacts could boost Pakistan’s geopolitical hedge, though escalation risks (especially as India has flagged discomfort) remain.
– Negotiating Leverage: External backing gives Pakistan more room in IMF and donor talks.
Still, the impact depends on the operational details — triggers, actions, and how deterrence is defined and whether it contains a Nuclear umbrella. Until then, markets will price it as confidence with caution.
Fed’s Ambivalence
Fed voted 11–1 to cut the funds rate to 4 percent, delivering the 25 bps cut. But Powell warned the path ahead is not risk-free: tariff-driven inflation could persist above target, and future moves will be decided “meeting by meeting.”
The Fed’s balancing act is clear. Cuts are designed to support a fragile labour market, yet inflation lingers. The “known unknowns” — political turbulence, supply shocks, global volatility — will haunt markets in the year ahead.
The 10-year Treasury yield rose seven basis points to 4.06 percent. The dollar firmed regaining about a 1% on the USD Index. Euro & GBP both corrected materially, while gold slipped marginally from a record $3,720 to $3,685. Still, the dollar’s broader weakness is stark — down 11 percent on its trade-weighted index in the first eight months of 2025, its worst run since the Nixon era.
Fed’s Impact on Pakistan Interest rates
The cut gives SBP more room to ease without risking outflows. It also softens Pakistan’s external debt servicing burden, provided the PKR holds steady. But markets still bets on no change in the next MPC until the fog of flood damage and geopolitical risks clears
Impact on Rupee
Fed easing takes pressure off the rupee, but its stability still hinges on stable remittance levels. REER remained almost unchanged, where as current posted a deficit of $264mn.
Selling forwards by exporters has picked up and analysts are of the view that tenors of up to 4 months (including December crossing) are safe to hedge as the Rupee outlook is stable
