- April 26, 2025
- Posted by: Tresmark
- Category:
Rupee’s Return Above 281
The Rupee closed above 281 last week, snapping a 15-month hiatus—even though the Dollar Index has slumped nearly 10% over the last few months. This isn’t just a random blip; it’s happening at a time of rare current account surpluses and record remittances.
Volatility in USDPKR has jumped materially over the past month, largely since Trump’s tariff tantrums started shaking markets.
This isn’t just about reserves slipping $226m WoW or $492m YTD. A key factor in the Rupee’s weakness isn’t just exports to the US taking a hit, but what’s about to happen in the Eurozone. If Chinese exports to the US slow down, they’ll flood the Eurozone instead—and that could seriously dent Pakistan’s exports to Europe.
Did China Devalue the Yuan?
While the Yuan appears stable against the Dollar, China has let the Yuan slide—just not against the Dollar. With the Dollar Index down nearly 10% this year, a “steady” Yuan actually means it’s quietly weakening against every other major currency. That’s a stealth move to juice up exports… just not aimed at the US.
Interest Rate Cut?
Projected inflation for next fiscal is out, averaging around 8%. This gives the MPC room to cut rates even on a forward looking basis, and a 100bps cut looks like the popular call. However, whether they move, will depend heavily on if the Fed cuts—or if US bond yields start spiking again.
Outlook for the PKR
If you look back at every episode where the Rupee spiraled out of control, it boiled down to three things: west-border smuggling, hundi/hawala channels, and a gigantic CA deficit fuelled by imports. This time, it’s different. It feels more like a managed depreciation strategy—a move that could actually help Pakistan navigate a hostile global trade environment and eroding reserves, but only if it’s done very, very gradually.
Trump’s Cracks Are Showing
Trump is already blinking on tariffs and even making noise about not firing Powell. As one article put it: “Trump blinked. Just like I’ve been expecting him to, based on his previous approach to negotiations. This is profound. US stocks rallied Wednesday after President Trump said he has ‘no intention’ of firing Fed Chair Jerome Powell, easing Wall Street fears over the central bank’s independence. Meanwhile, Trump also softened his tone on tariffs, hinting that eye-popping duty levels on Chinese imports would ultimately be scaled back.”
That said, we can’t rule out more months of trade uncertainty ahead.
Injured but not out
Significant damage has already been done. Trump’s attacks fatally undermined faith in the US Dollar—investors rushed into Gold, Cryptos, and G7 currencies. Even the Russian Rouble surged 40%, as it quietly appears to be pegged to Gold.
If more sovereigns and pension funds start unloading US assets, it could mortally wound the Dollar. Could that be the end of dollar dominance?
