By Shahzada Ahsan Ashraf
The Great Throwdini (Frank Cullen) held millions of people captivated by his precision knife throwing, narrowly avoiding the human bodyline. It is no surprise that no one wanted to be that human target.
The current new year has enacted the role of the Great Throwdini, with Pakistan being the unwilling accomplice. The regional conflict, escalation on its borders, deepening political turmoil, an indifferent ally in China, unyielding inflation, and an increasingly challenging debt burden are all unblunted knives that can cause deep injuries.
And we are not talking about cricket yet. Till now, Pakistan has bravely faced whatever is thrown at it. The sense of stability has been created much due to improved economic optics. And the way forward will also be to strengthen the economy.
Currency Outlook
The Iran-Pakistan conflict abruptly ended the slow and steady forward sale of dollars by exporters. Even though the conflict is on the trajectory of reconciliation, it seems unlikely that there will be any resumption anytime soon. Having said this, USDPKR seems to maintain its anchor at the 280 level, at least until there is a new elected government.
Analysts are also keenly watching the calculated escalation of hostilities against the Houthis in Yemen and are hoping it is not intended to expand geographically.
KIBOR & Interest Rates
KIBOR has decreased by about 125bps during the last one month. This would typically prelude a rate cut, but with inflation refusing to subside, an interest rate cut in the upcoming MPC seems premature. With the IMF’s review coming up next month, the best bet for a rate cut is in March 24.
USD Index looks firm
Despite the calmer conditions, the selling pressure on risk assets, and therefore the EUR/USD, may likely resume without a fundamental change in the current macro backdrop. Right now, the big concern is that the major central banks like the Fed, ECB, and BoE will not reduce interest rates as soon and as much as the markets have been expecting.
While in the case of the US, it is partly because of a relatively stronger economy, elsewhere – especially in the UK and Eurozone – it is mainly because of concerns about inflation remaining sticky, with wage pressures continuing to remain elevated.
Euro Expected to Trend Lower
- The EUR/USD pair is slightly stronger, but the US dollar’s resurgence keeps it under pressure, requiring more price action to attract bullish interest.
- The short-term trend remains downside-oriented, and despite the current calm, selling pressure may resume.
(The writer is a Former Chairman and Managing Director PIA, Former Federal Minister of industries and production)
