Pakistani Rupee Weakens Amid Geopolitical Jitters and Oil Price Shock
The Pakistani rupee (PKR) weakened slightly against the US dollar in interbank trading on Friday, reflecting global market turbulence after Israel launched airstrikes on Iran. The local currency depreciated by 0.03%, falling to Rs282.75 per USD as of 10:00 AM, compared to Thursday’s closing of Rs282.67.
The minor slip in the rupee mirrors a broader surge in the US dollar and other traditional safe-haven currencies, including the Japanese yen and Swiss franc, following a sharp escalation in Middle East tensions.
What Triggered the Decline in PKR?
1. Global Dollar Rally
The US Dollar Index, which tracks the greenback against a basket of six major currencies, jumped 0.4%, hitting 98.07 in early Asian trading. This reversal came after reports that Israel had targeted Iranian nuclear and missile sites, causing explosions near Tehran. Though Washington denied involvement, risk-off sentiment spread rapidly across global markets.
2. Surge in Oil Prices
Brent crude surged over 7.6%, rising to $74.65 per barrel, while WTI crude climbed to $73.42, their highest levels in months. For import-dependent economies like Pakistan, higher oil prices increase the import bill, putting pressure on foreign exchange reserves, trade balance, and ultimately, the rupee.
Rising oil prices and safe-haven demand for the US dollar are combining to place downward pressure on emerging market currencies, including the PKR.
3. Investor Flight to Safety
Currency markets saw rapid shifts, with risk-sensitive Asian currencies like the Australian and New Zealand dollars losing 0.9% each, while the Japanese yen gained as investors pulled capital into lower-risk assets.
Broader Currency Trends
| Currency | Movement |
|---|---|
| US Dollar Index | +0.4% to 98.07 |
| USD/JPY | -0.35% to 143 |
| USD/CHF | -0.39% to 0.807 |
| AUD/USD & NZD/USD | -0.9% each |
This trend reflects global currency realignment rather than Pakistan-specific economic data, although the impact on local inflation and fiscal metrics may follow.
Domestic Implications for Pakistan
The State Bank of Pakistan (SBP), which is scheduled to announce its monetary policy decision on Monday, is likely monitoring this volatility closely. A weakening PKR, coupled with higher oil prices, could delay further interest rate cuts, as inflationary pressures may re-emerge from higher fuel import costs.
While inflation in Pakistan had been trending lower in recent months, a sudden shock in energy prices could reverse that trajectory. This comes just days after a cautious budget was unveiled, projecting GDP growth of 4.2% amid reduced spending and higher defence allocations.
Conclusion: Rupee Faces Global Headwinds, Not Local Weakness
Despite Friday’s minor depreciation, the rupee remains relatively stable in the face of high global volatility. However, the risks of a prolonged geopolitical crisis, combined with elevated oil prices, could strain Pakistan’s macroeconomic fundamentals, especially if investor sentiment sours or external financing becomes more expensive.
The coming days will be critical as currency markets digest developments in the Middle East, oil prices find a new range, and Pakistan’s central bank signals its next move.