- August 30, 2025
- Posted by: Tresmark
- Categories:
In the early 1990s, the Sterling was pegged to the ERM (Exchange Rate Mechanism) — a political promise about the currency’s strength. But beneath the surface, the numbers didn’t add up. Inflation was high, growth was weak, and the pound was overvalued against stronger European currencies like the deutsche mark. Speculators saw the mismatch.
On the morning of 16 September 1992, Britain awoke to the battle that would become known as Black Wednesday. Traders across London circled like sharks, convinced the pound could not hold. The government, determined to prove otherwise, took strong measures: interest rates were yanked higher — not once, but twice in a single day — and billions of pounds in reserves were thrown in to defend Sterling. Yet every defense only deepened the market’s resolve. Phones rang off the hook on trading floors and bets against sterling multiplied.
By nightfall, the inevitable happened. The Bank of England surrendered, sterling crashed out of the ERM, and George Soros etched his name into financial legend with a billion-dollar profit. It was a spectacular defeat — and a timeless reminder that no force can outmuscle the market when fundamentals are stacked against it.
Pakistan’s PKR shows similar strains today. The rupee has been pushed higher by admin measures, especially in the open market (cash dollars). Due to this, actual cash transactions have slowed down significantly with exchange companies hardly ever having forex cash. This will impact remittances very soon and perhaps reignite hawala transactions — or crypto exchanges which are more widely used these days. Exporters are also holding proceeds back. This creates an uneasy calm — the appearance of strength while supply dries up in the background. If inflows continue to stall, pressure will mount and the eventual adjustment could be sharp. As history shows, markets are always right.
Rupee could have strengthened substantially
SBP Deputy Governor Dr Inayat Husain, speaking to the NA’s Standing Committee, said that since mid-2024, PKR has strengthened on higher inflows and admin controls. To avoid an “over-correction,” SBP has purchased $7.8bn from the market, lifting reserves to $14.5bn (≈2.3 months of import cover). Officials argue PKR is now “fairly valued” and intervention ensures external stability, countering fears of an artificial peg.
Above is quite an interesting perspective and does imply that if growth is maintained on the back burner, the rupee will remain stable. SBP earlier also signalled that they would want to avoid a boom-bust cycle and therefore will prioritise stability over unsustainable growth.
Interest rate cycle
If we extend that, it would also mean that interest rates may not drop further even though real interest rates are 7% in current terms and around 3% on a forward-looking basis. The impact of floods will further support the view of no interest rate cuts.
Rupee outlook
Pakistan faces a $500 million Eurobond repayment in September 2025, followed by a $1 billion maturity in April 2026. These are the closest obligations. Additionally, a policy change now requires that Umra planners pay their forex obligations in advance — which can also have some material impact.
Given the polarity of views above, we advise exporters to book up to 3 months and for tenors above that they may want to consider a consignment-to-consignment costing approach. Premiums are stable and 3- & 6-month forward rates are around 285.55 & 289 (quite attractive).
In the short/medium term we are looking at a bottom of 280.50 for USD/PKR.
SBP makes a profit equivalent to 2.4% of GDP
SBP’s profits, a mix of:
• Elevated interest revenues due to high policy rates,
• Strong investment performance in both local and FX assets,
• Substantial valuation gains on gold, and
• Active FX interventions.
Though an impressive windfall (which may be diverted to pay off circular debt), this can also undermine SBP’s independence, as its role shifts from stabilising inflation and currency to being a profit centre to prop up the govt budget.
Indian Rupee slides to all-time low
The INR slid to a record ₹88.3/USD, pressured by new US tariffs on Indian exports, heavy FII sell-offs, and tighter global liquidity. The RBI allowed a softer defence, aiming to support exporters while preserving reserves. Panic dollar demand and tariff fears amplified volatility.
Fed view remains intact
Markets remain fixated on a likely Fed rate cut, with upcoming US/Canada jobs, ISM/PMIs, and Eurozone CPI data as key catalysts. The USD holds steady but faces strain from cut expectations and political noise around Fed independence, keeping FX markets cautious and sensitive to incoming data.
Oil trajectory
Brent prices have fallen 12% in the first eight months of 2025 and Goldman Sachs predicts the benchmark will drop further to $60 by year-end.
Projections
USD/PKR
• 1 Week: 281.70
• 1 Month: 281.00
• 1 Quarter: 282
EUR/USD
• 1 Week: 1.1602 (Bearish)
• 1 Month: 1.1656 (Bearish)
• 1 Quarter: 1.1808 (Bullish)
GBP/USD
• 1 Week: 1.3427 (Bearish)
• 1 Month: 1.3585 (Bullish)
• 1 Quarter: 1.3757 (Bullish)
USD/JPY
• 1 Week: 147.52 (Bullish)
• 1 Month: 145.22 (Bearish)
• 1 Quarter: 142.99 (Bearish)
Oil WTI
• 1 Week: 64.62 (Bullish)
• 1 Month: 66.69 (Bullish)
• 1 Quarter: 66.43 (Bullish)
Gold
• 1 Week: 3433.33 (Sideways)
• 1 Month: 3428.57 (Bearish)
• 1 Quarter: 3510 (Bullish)
