The Pakistani Rupee is strengthening against the US Dollar for a second consecutive day on Friday. The Pakistani Rupee settled on Thursday +0.4% at 160.40. The Rupee is on course to gain 0.9% versus the greenback this week.
At 10:15 UTC, USD/PKR is trading -0.3% at 159.00. This is at the low of the daily traded range as investors await the State Bank of Pakistan’s (SBP) monetary policy announcement.
100 Basis Point Rate Cut Coming?
The SBP monetary policy committee is due to announce the monetary policy decision. Analysts widely the central bank to cut interest rates by anything from 50 basis points to 150 basis points.
The monetary policy committee has already cut interest rates by 4.25% in just two months, taking the rate to 9% in an attempt to cushion the impact of the coronavirus crisis on the economy.
Inflation is expected to decline to 7-8% in May owing to falling prices and a sharp drop in oil. Falling inflation gives the central bank room to ease monetary policy further. That said, the central bank said in its last policy statement that it expects inflation this fiscal year to sit between 11 -12% and fall to 7 -9% next fiscal year.
A broad risk on climate in the financial markets following upbeat Chinese industrial data is also boosting demand for the Rupee. Chinese Industrial production increased 3.9% year on year in April, significantly ahead of the 1.5% increase forecast. The data boosted optimism that progress was being made in restarting industry in the world’s second largest economy and Pakistan’s main trading partner.
US Retail Sales & Consumer Confidence In Focus
The US Dollar is slipping lower on Friday as investors seek out riskier currencies and assets. Attention will now move towards US retail sales data and consumer confidence figures. Analysts are expecting retail sales to decline -12% month on month in the lockdown month of April. This is down from -8.7% drop in March. However, it is also expected to be the low point for sales as the US economy gradually eases lockdown restrictions and restarts its economy.
US consumer confidence will also be closely monitored. Consumer confidence is important because consumers increase spending when morale lifts. Analysts are expecting sentiment to drop to 68 in May down from 71.8.