USD/PKR analysis: what’s ahead for the vulnerable Pakistani rupee?

on May 8, 2023
  • USD/PKR rate remained in a consolidation phase on Monday.
  • Pakistan and the IMF continued deliberating on a bailout last week.
  • It is unclear whether the two sides will reach a deal soon.

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The USD/PKR exchange rate moved sideways on Monday as investors focused on the bailout talks between Pakistan and the IMF The USD to Pakistani rupee exchange rate was trading at 283.43, where it has been in the past few days. This price is about 25% above the lowest level this year.

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Pakistan IMF bailout news

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The economic situation in Pakistan has continued to worsen as the country nears a major default unless it reaches an agreement with the IMF. According to Reuters, the two sides held the ninth meeting to deliberate on key sticky issues before the IMF releases its funds.

The IMF, as it always does, has requested Pakistan to change its fiscal plans before it releases its funds. These talks are aimed at unlocking funding of $1.1 billion due in November from the $6.5 billion that was agreed in 2019.

Pakistan has announced that it will close its balance of payments or budget deficit this year. Also, it has received commitments from Saudi Arabia and the United Arab Emirates (UAE). The two countries have pledged $3 billion while China has decided to roll over its loans. 

Pakistan is going through one of the worst periods in its history, with official inflation standing at 36.5%. Prices of basic items like fuel and food have jumped sharply in the past few months. The country has until June to reach an agreement with the IMF.

Expectations are that the Pakistani rupee will bounce back slightly as investors price in a bailout in the coming months. However, as we have seen with other countries that have received IMF bailouts, the strength of their currencies tend to wane. This happens as an era of new normal sets in.

The other key catalyst for the USD/PKR exchange rate will be the upcoming US inflation data scheduled for Wednesday this week.

USD/PKR technical analysis

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USD/PKR chart by TradingView

On the daily chart, we see that the USD/PKR exchange rate has moved sideways in the past few weeks. The pair was trading at 283, which was lower than the all-time high of 287.99. It is consolidating at the 50-day and 25-day exponential moving averages. This consolidation is happening as traders wait for the outcome of the IMF deliberations.

Therefore, I suspect that the USD to PKR exchange rate will remain in this range this week and then have a bearish breakout towards the end of the month. If this happens, the next level to watch will be at 280.

International Monetary Fund (IMF) Pakistan PKR USD Forex