• Pakistan Rupee (PKR) rises for second day
  • Inflation at 11.1% in April
  • US Dollar (USD) rebounds versus major peers
  • US trade data, factory orders and business conditions numbers due

The US Dollar Pakistan Rupee (USD/PKR) exchange rate is edging lower on Tuesday, extending losses from the previous session. The pair settled -0.08% lower on Monday at 152.85. At 11:00 UTC, USD/PKR trades -0.1% at 152.70 at the low of the day.

Inflation in Pakistan is showing no signs of slowing. Food prices are elevated and global commodity prices are rising which will keep prices in the domestic market high.

Headline inflation stood at 11.1% in April, a 1% increase compared to the previous month. In the 10 months to April average inflation is standing at 8.6%, full year inflation looks set to be 9%.

Meanwhile core inflation, which excludes more volatile items such as food and fuel at 7%.

With rising inflation levels, the hawks in the State Bank of Pakistan could be starting to wake up. However, with the third wave of covid hitting monetary policy is unlikely to be tightened.

The US Dollar is falling versus the Rupee. However, the US Dollar is rising versus its major peers. The US Dollar Index, which measures the greenback versus a basket of major currencies trades +0.4% at the time of writing at 91.32 after rebounding from a steep selloff in the previous session.

The US Dollar fell sharply on Monday after weaker than forecast US manufacturing activity data. The ISM manufacturing PMI unexpectedly declined to 60.7 in April, down from the multi-decade high of 64.7 in March. Analysts had been expecting a rise to 65.

The problem here is not a demand issue, instead demand is running ahead of supply. There is a growing supply problem with managers reporting a struggle to meet the increasing rate of demand as covid limits the availability of some parts and materials.

Looking ahead, there are several data points this afternoon, including Factory orders, Business conditions and trade balance which could direct movement in the US Dollar.