USD/PKR: Pakistani Rupee Drops As Coronavirus Slows Chinese Investment Projects

The Pakistani Rupee is drifting lower versus the US dollar for a second straight day on Thursday, as weaker risk sentiment hit perceived riskier assets across the board.

After opening the session at 154.22 versus the US Dollar, the Rupee (USD/PKR) weakened on the open market to 154.30 against the greenback. This is at the upper end of the daily range of 154.18 – 154.32.

Disruption to China’s Belt Road Initiative

The Pakistani rupee is under pressure amid growing concerns over the impact of coronavirus on the global economy. China linked infrastructure projects in Asia are being affected, mainly due to travel restrictions on Chinese workers.

The deadly virus is causing disruptions to China’s construction and investment plans overseas including corporate expansion projects spanning power and construction in Pakistan and China’s Belt and Road Initiative (BRI). Analysts highlighted the China – Pakistan Economic Corridor (CPEC) as an area which will experience a slowdown.  This is bad news for the Pakistan economy which relies heavily on China.

US Dollar Under Pressure Amid Further Rate Cut Speculation

Whilst the US Dollar is strengthening versus the Pakistani Rupee, it is weakening versus it’s major peers. The sell off in the dollar comes as investors start to price in additional rate cuts by the Federal Reserve.

The Federal Reserve cut interest rates on Monday, by 50 basis points in at bid to support the US economy as it faces a slowdown from the coronavirus outbreak. With a state of emergency declared in California and the number of cases rising, investors are starting to think that the 0.5% cut will not be enough.

The US rates sit at 1.00-1.25% this technically still leaves plenty of room for further cuts in the coming weeks or months should it be deemed necessary. This will depend largely on what the data is saying.

In the previous session US service sector PMI data was strong and ADP private payroll numbers also beat expectation. The figures eased fears over a recession in the US. Today investors will be looking closely at mid-tier figures – US jobless claims and US factory orders, ahead of tomorrow’s all important non-farm payroll numbers.

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