• Pakistani Rupee (PKR) is under pressure after WB projects 0.5% GDP in FY21
  • Pakistan could struggle to repay external loans
  • US Dollar (USD) trades broadly lower versus major peers in risk on trading
  • Trump softens his tone on fiscal stimulus

The US Dollar Pakistani Rupee (USD/PKR) exchange rate is climbing higher on Thursday, snapping a two day losing streak. The pair settled -0.12% lower in the previous session at 163.42 the low of the day. At 09:15 UTC, USD/PKR trades +0.1% at 163.67.

The World Bank has warned that economic growth in Pakistan could remain depressed this financial year. The WB’s latest report on South East Asian economies forecasts a steeper than expected economic contraction across the region. Regional GDP is expected to contract -7.7% in 2020, after growing around 6% for the past 5 years.

The WB forecasts 0.5% economic growth for FY 21 in Pakistan compared to 4% annual average growth across the previous 3 years. The WB added that Pakistan could struggle to repay external loans as covid threatens growth and locusts and heavy rain could lead to widespread malnutrition and poverty.

The US Dollar is trading higher versus the Pakistani Rupee but is trading lower versus its major peers amid an improving mood in the market. Risk appetite is improving as President Trump soften his tone on fiscal stimulus.

Earlier this week, Trump abruptly ended fiscal stimulus talks until after the elections. However, after some back-pedalling Trump and the House Speaker Nancy Pelosi appear to agree on the idea of smaller more targeted standalone bills to support the economy. The market is assuming that some form of stimulus is coming, sooner rather than later. This is driving a risk on rally boosting demand for riskier assets and currencies, whilst safe havens such as the US Dollar is trading on the back foot.

Looking ahead, US jobless claims will come into focus. The data is expected to show 820K Americans signed up for unemployment benefits last week down from 837K, as the recovery in the labour market stalls, highlighting just how necessary additional fiscal stimulus is.