- Pakistani Rupee (PKR) is under pressure as full year large scale manufacturing (LSM) is worse than initially forecast
- This could negatively impact GDP
- US Dollar (USD) recovers after dovish Fed drags on greenback
- US GDP expected to show -35% on an annual basis in Q2
The US Dollar Pakistan Rupee (USD/PKR) exchange rate is extending gains for a second straight session. The pair settled on Wednesday +0.2% at 166.72. At 08:45 UTC, USD/PKR trades +0.1% at 166.90.
Pakistan’s Large-Scale Manufacturing Index is showing signs of recovery. After plunging -42% year on year in April the index declined -25% in May. According to data released by the Pakistan Bureau of Statistics nearly all the major contributors to the LSM saw a month on month recovery as lockdown eased. The major contributors are cotton, yarn cloth, cigarettes, steel and iron, cement and the automobile sector.
Even so, the full year contraction in LSM is expected to be -10.4%, worse than the governments’ provisional estimates of -7.7%, making FY2020 the worst year for large scale manufacturing in Pakistan in 2 decades. This in turn could lead to a downward revision in GDP estimate.
The Dollar is pushing higher versus its major peers on Thursday, showing some signs of life after coming under pressure in the previous session. As analyst expected, the Federal Reserve kept made no changes to monetary policy. Federal Reserve Chair Jerome Powell warned that the coronavirus crisis was far from over and that the US economy was facing intensifying challenges. As covid numbers continue to increase the US economic recovery is showing signs of slowing. The Fed promised to use its full range of tools if needed. The dovish tone dragged on the US Dollar.
Attention will now turn to the US GDP for the second quarter April – June period. The GDP reading expected to be grim as lockdown caused consumer spending to slow significantly and business investment to dry up. Analysts are expecting the economy to have contracted -35% on an annual basis in the second three months of the year. This will be the deepest contraction recorded since World War 2. A weaker than forecast number could send the US Dollar tanking lower.