The Pakistani rupee is still hovering near its all-time low despite the positive developments on the country’s IMF negotiations. The USD/PKR retreated to 286, which was a few points below the all-time high of 290.
Pakistan and IMF negotiations
Pakistan has been a troubled country for months. Poor governance coupled with natural disasters have pushed the country into one of its biggest recessions in years. In 2022, the country went through major floods that had a major impact on the economy. Estimates are that the floods hit the GDP by about 2.3%.
In addition to human deaths, the floods affected the country’s agricultural production, with the entire cotton crop being wiped out. Official figures put the country’s unemployment rate at 8.5% although the real figure is much higher.
Pakistan is also facing a major dollar shortage as the Federal Reserve intensifies its tightening process. As a result, estimates are that the economy will grow by about 0.4% in 2023.
As I wrote in this article, Pakistan has been in talks with the International Monetary Fund (IMF) about capital infusion in order to avoid a default. After stalling for months, these talks seem to be moving in a positive direction.
The talks received a major boost on Thursday when Saudi Arabia pledged a $2 billion loan. Saudi Arabis is planning more capital infusion to the country. The United Arab Emirates (UAE) has also pledged to provide a $1 billion loan to the country.
Therefore, a deal with the IMF will likely provide a short-term reprieve for the tumbling Pakistani rupee. This will happen as the amount of US dollars in circulation increases in the near term.
In the long term, the outlook of the Pakistani rupee is bearish because the country faces more challenges.
USD/PKR technical analysis
USD/PKR chart by TradingView
The Pakistani rupee has been one of the worst-performing currencies in the past few months. A closer look shows that the USD/PKR pair has risen from a low of 105.18 in 2018 to the current 286.
The chart shows that the USD to PKR exchange rate has moved above all moving averages while the Relative Strength Index (RSI) has moved above the overbought level. Therefore, the pair will likely continue rising as buyers target the next key resistance level at 300.
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