| If you look at the USD/PKR chart over the past six months, you might feel it was purposefully choreographed—showing a gradual, almost weekly depreciation. But in the last three weeks, the hands of the choreographer seemed to fumble, resulting in sharper volatility. Just last week, the Rupee crossed 282/USD for the first time in 18 months.
Factors Behind Recent Rupee Weakness
– A spike in defence-related spending
– Haj-related outflows
– Backlog clearance following the reopening of the Afghan border
– SBP’s decision to let some swaps mature without rolling over via sell-buy arrangements, weakening spot rates and swap premiums
Residual Drag from Previous Factors
– Post-Trump tariff currency recalibration
– Slowdown in export proceeds, with delays and occasional cancellation of export orders
– SBP’s swap book shows ~$400 million in buybacks over the past four months
These factors disrupted the inflow-outflow equilibrium, leaving banks short in their NOPs, delaying LC retirements, and pushing the open market rate to 284/$. Export receipts have also slowed.
Positives for the Rupee
Interestingly, this weakness is occurring despite:
– $1 billion disbursed by the IMF and $1.4 billion approved under climate resilience financing
– REER appreciation to 99.4 from 101.6
– Reserves crossing $16 billion, highest in 3 years
– First credit rating upgrade in nearly 6 years
– Eurobonds and CDS have consolidated
– Eid-related remittance flows are set to resume
– Pakistan is on track to report its first Current Account surplus in decades
Budget Implications on the Rupee (and Beyond)
The market remains short on dollars but is not anticipating sharp movement. Tresmark projects June to close between 282.50–283.00.
Looking ahead, budget documents reflect a parity assumption of PKR 290$, implying a possible range of 283 to 297 in FY26. A high of 297/USD implies a 5.5% depreciation, aligning with the rupee’s historical average of ~6% per annum.
Reframing the Dollar Dominance Narrative
It’s also important to note that the so-called “King Dollar” has lost ground:
– Dollar Index has dropped 10%
– Moody’s downgraded US sovereign credit
– USD has weakened across all G-10 peers
– US faces $35 trillion in debt and $2 trillion annual deficits on a $28 trillion economy
– Gold’s surge reflects waning confidence in the USD as a reserve asset
Some analysts forecast an additional 25% drop in the Dollar Index over the next 3 years. With that lens, the Rupee deserves to be evaluated in a more global context, not just against the dollar.
Oil & War: Ominous Overhangs
This entire view does not factor in any significant changes in oil prices or a resurgence of conflict with India.
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