USD/PKR: Rupee Pare Gains amid Inflation Boost to 8.5-Years High

Monday’s trade saw USD/PKR within the range 154.30-154.65. The pair closed 0.19% higher at 154.30, as risk aversion seemed to have eased for the moment amid lack of negatively-nuanced headlines over the weekend concerning China coronavirus situation. On the other hand, accelerating CPI inflation in Pakistan weighed on PKR.

In their first trading day following an extended Lunar New Year break, Chinese shares went deep into negative territory, but analysts attributed the move to built-up selling pressure during the long holiday instead of new market concerns.

The People’s Bank of China (PBOC) said the selloff had had panic elements as a result of “herd behavior.” In order to mitigate the outbreak’s hit on local economy and to ensure market liquidity, the PBOC conducted a 1.2 trillion Yuan (or about $174 billion) reverse repo operation, the largest in scale since 2004.

Meanwhile, on the US macroeconomic front, a report by the Institute for Supply Management said manufacturing activity had expanded for the first time in six months in January, with the respective PMI coming in at a reading of 50.9, exceeding a consensus of estimates.

Also on Monday, a report by Pakistan Bureau of Statistics showed annual consumer price inflation in the country accelerated to 13.07% in January from 12.42% in December, driven by a 19.3% surge in prices of food & non-alcoholic beverages, a 14.3% increase in cost of transport and a 12.3% increase in cost of miscellaneous goods & services. January’s inflation rate has been the highest since June 2011, which suggested the SBP would probably maintain current policy course, keeping borrowing costs at an 8-year high of 13.25%.

The US Dollar Index was up 0.08% to 97.89 in late Asian trade on Tuesday.

Today’s focus will be on the US factory orders report at 15:00 GMT. New orders for manufactured goods probably rose 1.1% in December from a month ago, according to market expectations. In November, factory orders dropped 0.7% on lower demand for machinery, transportation equipment and primary metals. In case the index rose at a faster-than-expected rate in December, this would have a limited bullish effect on the USD.

USD/PKR was edging up 0.08% to 154.43 in early London session on Tuesday.

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