USD/PKR traded within a narrow range on Wednesday, thought a flurry of macroeconomic data was released during the US session. The US economy reportedly expanded at an annualized 2.1% during Q3, due to a stronger pace of inventory accumulation and a lesser drop in business investment. This is up from a preliminary estimate of 1.9% and following a 2% growth in Q2.
A separate report showed the number of Americans filing for unemployment benefits dropped by 15 000. The total was 213 000 during the week ended November 24th. Both reports exceeded market estimates.
Near-term interest rate expectations were in unison with the latest string of US data. According to CME’s FedWatch Tool, as of November 28th, investors saw a zero percent chance of a rate cut occurring at the Federal Reserve’s policy meeting in December, unchanged from a week ago. The probability of a rate cut in March 2020 is now 16.1%, down from 23.1% a week ago. Now that the Fed has reduced the federal funds rate three times in 2019, the targeted range for the benchmark currently stands at 1.50%-1.75%.
In international aspect, after over 16 months of US-China trade frictions, the two countries are still expected to reach a ”phase one” trade deal. This outcome would improve market sentiment and spur investor appetite for riskier assets, including emerging market currencies such as PKR.
Meanwhile, the latest CFTC data showed that bullish bets on USD had decreased to their lowest level since this summer, which could also lend support to exotic currencies.
The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was little changed at 98.268 in late Asian trade on Thursday.
Today is the national Thanksgiving Day holiday in the United States, which commemorates harvest. Banks in the country are to remain closed, while no relevant macroeconomic reports are scheduled. Therefore, market trading volumes are expected to remain thin.
Market players focusing on PKR will be paying a close attention to the monthly report on inflation in the South Asian country at the start of the next week. Annual consumer price inflation in Pakistan was reported at 11.08% in October, down from 12.55% in September. Since the country has faced excessively high levels of inflation over the past several years, any signs of moderating inflationary pressure would support PKR valuation.
Excessive inflation, high debt ratio, widening current account deficit and decreasing foreign exchange reserves have caused PKR to depreciate considerably against USD since late 2017. This summer the Pakistani government agreed to another $6 billion bailout package by the IMF, which mounted additional pressure on the domestic currency, as USD/PKR breached the 160.00 threshold.
The pair was edging up 0.10% to 155.35 in late Asian session on Thursday.