USD/PKR FX Rate Prediction for 2024

The USD/PKR currency pair has exhibited high volatility over the years, especially for the last few years following 2021, influenced by various economic and political factors.

The Pakistani Rupee (PKR) has a managed floating exchange rate system, which means that the central bank of the country is actively involved in keeping the currency stable, while the currency is also available for trading in the Forex market.

It should be noted that USD/PKR is classified as an exotic pair and has low liquidity, making it an unprofitable pair for day traders. However, longer term traders can still find trading opportunities.

The US Dollar is a major global currency and primary choice for countries to keep their foreign reserves. The currency is actively utilized in global trade and finance.

To predict the value of USD/PKR, we needed to take into account major economic and political factors that influence currency valuations the most, such as: trade balance, national debt, interest rates, inflation, economic growth, and more. In this article, we’ll also take a look at the USD/PKR price chart.

Elements affecting the value of the USD

The US Dollar is a global currency, and its value is influenced by the multitude of factors that are generally grouped into two categories: global demand on the USD, and economic and political factors in the United States. There have been many attempts to limit the USD’s dominance in the global arena, such as the possibility of creating BRICS (Brazil, Russia, India, China, and South Africa) currency, and Chinese attempts to push the Chinese Yuan as an international currency backed with gold reserves. However, these plans have all failed and the USD is likely to remain the global currency for 2024.

Investors from around the world closely monitor economic and political developments inside the United States and trade USD in the Forex markets. As a result, everything that happens to the US economy is quickly reflected in the value of USD. Financial markets are incredibly efficient. Let’s discuss these economic and political factors in more detail.

Interest Rates

Interest rates are set by the Federal Reserve (the Fed), which is the central bank of the United States. Interest rates are a mechanism through which central banks control the money supply and therefore influence the price of the currency directly.

Increase in interest rates means that loans become more expensive for the businesses and individuals, and therefore they take less money from the banks. As a result, less money gets circulated in the economy and the value of the single dollar rises. However, high rates come at a price, when less money is poured into the economy, individuals start saving for essential goods and services, and many businesses suffer. One man’s expenditure is another man’s income.

The US economy has enjoyed low rates (0.25%) from late 2020 to 2022. However, to counter increased inflation, the central bank in the USA had to increase rates dramatically. The rates gradually increased from 0.25% to 5.5%. It is likely that the high rates are here to stay for 2024. Which is beneficial for the value of USD short term, but may hurt it in the long term as high rates typically hurt the economy.

Economic Factors

The United States has a huge economy. Its GDP (Growth Domestic Product) is over 25 trillion US Dollars. And this number keeps growing. GDP is a measure of the total economic output of a country. It measures the market value of all goods and services produced within a nation’s borders in a given period of time (often in a year or in a quarter). Now let’s take a look at how the GDP of the USA has been changing over the past few years. The 2023 numbers aren’t available yet.

Inflation Rates

Inflation has a huge impact on the valuation of the Dollar against Pakistani Rupee. Inflation is when the prices of goods and services increase, that means you need more money to purchase the same things you could buy before. In 2020, prices in the United States went up by 1.2%, and in 2021, they increased more, by 4.7%. In 2022, the prices rose even higher, going up by 8%. This increase in prices, caused by the Covid-19 pandemic and low interest rates from previous years. When interest rates are low, individuals take out more loans and this extra money in people’s pockets can make prices go up. Inflation is likely to remain a challenge for the US economy for 2024.

Trade Balances

Trade balance has a significant impact on the strength of the currency. In recent years, the United States has seen its trade deficit increase steadily, reaching a record high of 945.32 billion USD in 2022. In 2009, the deficit was 393.77 billion USD, and by 2012, it had gone up to 446.86 billion USD.

It is likely that the worsening trade deficit will continue for the USA in the upcoming years, which can be a significant burden for the USD. On the other hand, the government’s policy in the United States has dramatically changed in favor of increasing local production to lower imports.

Debt

The total debt of the United States has increased to more than 33 trillion US Dollars, which is way more than the whole country’s GDP (25 trillion USD). The 33 trillion debt includes government and public debt. There are various ways how this debt can impact the value of USD. Firstly, it impacts investor confidence, less Individuals will invest in a currency that is burdened with increasing debts. To manage the level of debt, governments might increase interest rates.

Presidential Elections 2024

Presidential elections in the USA can have a significant impact on the value of the national currency. Candidates’ plans for monetary policy, immigration, military budget, and trade are key determinants on how the country’s economy will change.

Obama’s administration was more focused on developing international trade and removing hurdles along the way, however, this approach has changed during Trump’s presidential term. And Biden also supports bringing manufacturing back to the USA. The government heavily invests in production of chips, semiconductors, and green technology. This approach is likely to remain dominant in the USA for 2024 and years to come as the idea of lowering the negative trade balance has strong supporters among both republicans and democrats.

Global Factors

The US dollar is a global currency and ongoing processing in the global arena can have a significant impact on the currency. Military conflicts in US allies, Israel and Ukraine are likely to preserve for 2024, which means that the US Government will be urged to spend more money in military and humanitarian aid. The increased spending on war can have a negative effect on the value of USD.

Elements affecting the value of the Pakistani Rupee

The official currency of Pakistan, Pakistani Rupee (PKR) was first introduced in 1948. Since the currency was introduced, it began losing value against major currencies. Up until 2017, Pakistani Rupee was losing its purchasing power steadily. However, from the beginning of 2018 to this day, the currency has lost significant value against USD. Single US Dollar started from around 105 Rupees in 2017 to around 300 Rupees in 2023. The massive drop in the currency’s value has its reasons. And to be able to make predictions about the 2024 USD/PKR rates, we need to discuss fundamentals and technicals that leave their mark.

Inflation in Pakistan

Inflation is one of the key metrics to take into account when predicting the value of currency as inflation data shows the degree to which the currency has lost its purchasing power. Pakistan has experienced much higher inflation than the United states in recent years. Let’s take a look at the inflation data below:

The final inflation numbers for 2023 aren’t available yet, but we can expect that the trend will continue. The Pakistani Rupee has lost significant value against the US Dollar in 2023. And we’ll discuss this in more detail with charts below.

Interest Rates

One of the main jobs of central banks is to keep inflation low and steady. Volatile and high inflation hurts businesses and the overall economy the most. As we’ve seen from the inflation table, Pakistan has recently experienced high inflation. And to counter it, the central bank has imposed high interest rates.

Now let’s check the inflation and Interest rates in Pakistan

As you can see, the interest rates are correlated with inflation. And for 2024, it is expected the Pakistani Rupee will retain high inflation rates, followed by high interest rates from the central bank.

Economic conditions in Pakistan

Pakistan has a large economy. However, the population of the country is also very large and when total GDP is divided among over 240 million people, we get around 1.5k USD, which is very low. The country has significant poverty levels and to combat poverty, fast economic growth is needed. Luckily, the economy of Pakistan has enjoyed good growth over the past few years with the exception of 2020 (-0.94). However, the growth rate is not fast enough to lift millions out of poverty. Let’s take a look at GDP annual growth rate chart below:

Pakistan’s trade balance

Trade balance is the measure of how much money a country makes or losses from trade. And it’s calculated by earning from exports minus expenditure on imports. Positive trade balance is good for the national economy and strengthens the national currency, while negative reading is bad for the value of local currency.

Pakistan is a consumer country and has had a negative trade balance in the absolute majority of the years from the country’s recorded financial data. In addition, it should be mentioned that the trade deficit of the country is fluctuating radically every year, which makes predictions difficult. Let’s take a look at the trade balance table for over the past several years.

Pakistan National Debt

High national debt can have negative implications for a country’s local currency due to multiple factors. While having some level of national debt is common for most countries, excessively high or unsustainable levels can contribute to negative effects on the local currency. Which is why rising debt levels is always a reason for concern to investors.

If a government finds itself allocating a large portion of its revenue to debt servicing, it will likely have a reduction in flexibility while implementing physical policies to foster economic growth and promoting exports.

Pakistan has high debt, however, it should be mentioned that the country’s debt to GDP ratio is not as dramatic as the US’s case. The United States has 33 Trillion USD in debt and 25 Trillion USD in GDP. The GDP number for 2023 for Pakistan is not yet published, however, we can take a look at 2022 debt to GDP ratio. In 2022, Pakistan’s GDP was 376.53 billion dollars and the national debt was 183.57 billion US Dollars.

What’s concerning investors regarding Pakistan’s debt is that it keeps growing. And it’s projected to reach above 280 billion USD in 2024.

US Dollar against Pakistani Rupee

If we take a look at the US Dollar against Pakistani Rupee chart (weekly), we can see that the Rupee has been losing its value gradually. And from early 2022, the trend accelerated. It is likely that the trend will continue and for 2024, the USD/PKR rate will remain highly volatile ranging between 280 and 380 levels.

Wrapping Up

To sum it all up, there are multiple factors impacting both USD and Pakistani Rupee. The US dollar has a huge and increasing trade deficit, large national debt, and interest rates are kept at high levels. In addition, there are presidential elections and global challenges that can impact the value of USD, such as global cheap shortages and wars in Israel and Ukraine. On the other hand, Pakistan has its own challenges. The national debt of Pakistan is increasing every year, the country has huge trade deficits, and interest rates and inflation have increased dramatically from 2022. If we take into account fundamental factors and technicals, we can predict that the USD/PKR exchange rate will remain highly volatile for 2024, ranging between 280 and 380 levels.