The US dollar fell 0.4% versus the Pakistani Rupee across the previous week. The exchange rate started on Monday at 155.750. The Pakistan Rupee strengthened against the US dollar, taking the exchange rate to a low of 155.525 on Friday. US non-farm payrolls gave the US dollar a late boost, lifting the US dollar Pakistani Rupee exchange rate to a weekly high of 156.445. However, the spike higher was short lived and the Pakistani Rupee strengthened 0.5% versus the dollar on the last day of the trading week.
Let’s take a closer look at the factors which drove the US dollar and the Pakistan Rupee last week.
The US dollar trended lower across the board in the previous week as investors digested a slew of disappointing macroeconomic figure before the US non-farm payroll smashed expectations and briefly lifted the US dollar off weekly lows versus the Pakistan Rupee.
The Labour Department’s non-farm payroll report is the most closely watched macro-economic data release across the month. It is the most complete write up of the US labour market by the Federal Government. The non-farm payroll report showed that the number of jobs created in November soared by 266,000. This was well above the 180,000 that analysts had been expecting and was the highest reading since January. Furthermore, the strong headline number lifts the three-month average to a very solid 250,000 jobs. The unemployment rate also ticked lower to 3.5%, down from 3.6%, taking the rate back to the 2019 low and the lowest level since 1969.
Average hourly wages is a closely watched component of the report. This is because higher wages tend to have an inflationary effect as households have more disposable income. Wages increased 3.1% year on year, above the 3% forecast.
Whichever way you look at it, this was a strong report. It is supportive of the Federal Reserve’s theory that the US economy is holding up well and that monetary policy is should be where it is. The dollar briefly spiked versus the Pakistani Rupee following the results.
NFP Leading Indicators
Analysts and market participants alike had been pessimistic heading into the non-farm payroll reading. Data points earlier in the week, which are considered leading indicators for the non-farm payroll had disappointed, leading investors to believe that the non-farm payroll would undershoot estimates.
For example, the ADP private payroll report show that just 67,000 jobs were created in the private sector in November, short of the 150,000 forecast. The employment component of the ISM manufacturing and non-manufacturing report also showed a decline. Yet despite indications of a weakening labour market prior to Friday’s NFP, the Labour Department’s job data exceeded analyst forecasts cementing expectations for the Fed to keep interest rates on hold when they meet next week.
Trade headlines continued to drive the financial markets for yet another week. At the beginning of last week, Trump commented that he was willing to wait until after the US elections in 2020 for a trade deal with China. This unnerved dollar investors, given the negative impact that the trade dispute is having on the US manufacturing sector. Trump’s comments were sharply in contrast with growing optimism that the US and China were close to achieving a phase one trade deal.
Later in the week, China reported that both sides were discussing the rolling back of some tariffs, a key point for a deal being agreed for China. On Friday, China also confirmed that it will waive import tariffs for some soybeans and pork shipments. This is the first really tangible signs of progress in US — China talks that has been seen for a while.
Trade will remain in focus next week as Trump’s deadline of 15th December draws closer. Investors will be watching to see whether President Trump considers that enough progress has been made in the trade talks to delay the implementation of further tariffs. Should Trump decide to go ahead with the next round of tariffs the dollar could rally as investors seek out its safe haven properties.
Also, in focus will be the final Federal Reserve monetary policy meeting. After three interest rate cuts this year and the US economy showing resilience, analysts are not expecting the Fed to cut again this year. Any hawkish comments from Fed Chair Powell and Federal Reserve policy makers could boost the dollar.
The Pakistani Rupee advanced in the previous week as investors digested stronger than forecast macro-economic data and a vote of confidence by Moody’s.
The key data release for the Pakistani Rupee last week was inflation. The Pakistan Bureau of Statistics (PBS) reported on Wednesday that inflation, as measured by the consumer price index (CPI) had shot up. Consumer prices soared to 12.67% in November compared to a year ago. This was above expectations of 11.8% and was the highest level in over 9 year. Whilst the finance ministry said that inflation would decline as from next month, thy failed to say how they had figured this, leaving market participants dubious.
The International Monetary Fund expect Pakistan inflation to hit 13%. The Pakistani government estimate it will be between 11 % – 13%.
High levels of inflation often boost the value of a currency because central banks will often attempt to combat high inflation by rising interest rate levels. By doing so central banks are encouraging foreign investment which increases demand for the currency. The value of the currency often rises as investors price in an increased likelihood of a rate cut.
With the case of Pakistan, the rally in the Pakistani Rupee was relatively shallow and that is because the central bank has made it clear has they have no plans to hike rates in the coming months to combat high inflation.
Also boosting the Pakistani Rupee in the previous week was an upgrade from Rating Agency Moody’s. Moody’s upgraded Pakistan’s credit rating outlook on Friday from negative to stable. The accompanying report to the upgrade said that it reflected the county’s large economy and robust growth potential. The report also cited the International Monetary Fund programme that helped stabilise the economy. Moody’s also confirmed the B3 rating on senior unsecure debt.
This is good news for the nation that has been dealing with an economic slowdown. Confidence surrounding the Pakistani economy is improving.
The week ahead could be a relatively quiet week for the Pakistani Rupee. The only high impacting macro-economic data point will be the Balance of Trade due for release on Monday.