Rupee gains in open, interbank markets against dollar; PSX witnesses bullish trend
Despite significant devaluation, the WB still sees the rupee overvalued by Sept by about 4.8pc.
KARACHI (Dunya News) – The Pakistani currency further recovered its value against the U.S. dollar on Wednesday.
The local currency gained 6 paisa in the interbank and hit Rs156 against the greenback during the early trade hours.
In the open market, it followed similar trend by gaining 5 paisa and hitting Rs156.15.
On Sunday, the World Bank forecasted Pakistan’s economic growth to slow down for the next two years as it faces yet another macroeconomic crisis due to massive twin deficits and low foreign reserves.
Despite significant devaluation, the WB still sees the rupee overvalued by the end of September by approximately 4.8%.
In the last two months, the local currency was observed to significantly recover against the greenback in both interbank and open markets.
Earlier, analysts had expressed fear that the intense ongoing trade war between the United States and China would result in fluctuation of the U.S. dollar in the local market, and the value of the Pakistani rupee would stabilise depending on the measures taken by the government with appropriate economic policies.
Currency traders were of the view that the increasing inflows of remittance have supported the local rupee in the market.
Previously, the rupee was observed to cumulatively depreciate against the greenback, which in turn, had resulted in increased prices of goods and hardships for the general public.
The SBP has let the rupee depreciate significantly in the inter-bank market after finalising an agreement with the International Monetary Fund (IMF) for a loan programme on May 12.
The IMF asked Pakistan to end state control of the rupee and let the currency move freely to find its equilibrium against the US dollar.
On the other hand, the World Bank Group has also supported the idea of leaving the rupee free from state control in an attempt to give much-needed boost to exports and fix a faltering economy.
After the International Monetary Fund (IMF) lent the first tranche of $991.4 million to Pakistan, the local currency had depreciated massively.
The stringent conditions – on which the global moneylender has formally approved the bailout package of $6 billion for Pakistan – seemed to have exerted more pressure on the local currency.
The gradual drop in the rupee had come due to high demand for the dollar against thin supply as the country continued to make aggressive international payments to partially pay off huge foreign debt and for imports.
Economists were of the view that effective measures must be implemented on the priority basis to recover the state from the balance of payment deficit.
Besides increased demand of the greenback in the local market, they had termed ‘balance of payments deficit’ as the main reason in the recent hike in the value of the US dollar.
Moreover, they had considered that state’s exports and investment were required to grow significantly, and the imports must be reduced to remove pressure on the local currency.
According to experts, the government must ensure implementations on economic policies after the deal with the IMF.
PSX observes bullish trend
On the other hand, the Pakistan Stock Exchange (PSX) witnessed an upward trend on Wednesday with the benchmark KSE-100 index gaining 218 points and hitting 34,302 points, Dunya News reported.
On Tuesday, IMF Deputy Director in the Research Department Gian Maria Milesi-Ferrtti affirmed that Pakistan has remained steadfast on fiscal adjustment and has picked up economic stability as a result.
He said there were good signals on the confidence front that the exchange rate was more realistically showing the economic conditions. He added that investors were gaining confidence.
He outlined that Pakistan’s tax revenue has been increasing despite of several challenges to the state’s economy.
Gold inches up on Brexit jitters
Gold prices edged higher on Wednesday after shedding nearly 1% in the previous session, on uncertainties surrounding Britain’s negotiations to leave the European Union, while a risk-on sentiment capped the bullion’s gains.
Spot gold XAU= was up 0.1% at $1,482.54 per ounce as of 0725 GMT. U.S. gold futures GCv1 were 0.2% higher at $1,486.90 per ounce.
“There are some uncertainties since there is a lot to go through on Brexit. For instance even if both EU and UK negotiators agree on terms it still has to go through the parliament,” AxiTrader market strategist Stephen Innes said.
However, a signed Brexit deal could push yields higher, which fundamentally are significant headwinds over the near term for gold, Innes added.
Higher yields tend to lift the dollar and pressure gold, which costs to store and insure but does not pay interest.
Brexit talks will resume in Brussels on Wednesday morning after “constructive” negotiations that went into the night on Tuesday, a British spokesman said.
Michel Barnier, EU negotiator, had made it clear at a meeting of the bloc’s ministers in Luxembourg that if an agreement could not be reached on Tuesday, it would be too late to send anything for leaders to approve at the summit in Brussels on Thursday and Friday.
Gold also found some support from fresh U.S.-China strains over Hong Kong.
Among other precious metals, deficit-hit palladium XPD= rose 0.2% to $1,736.39 an ounce, hovering near its record high of $1,739.93 hit on Tuesday.
Silver XAG= dipped 0.5% to $17.29 per ounce and platinum XPT= slipped 0.7% to $882.49.
