Since last year, the dollar has increased its price in foreign currencies. Why does this happen and how much more will it go up? Here we explain everything.
The first clue to this story is the economic crisis that the United States suffered from 2008. At that time, the Federal Reserve, which acts as the central bank of that country, brought the interest rates to 0%, so that asking for a loan was very simple. This measure was taken so that companies and individuals could obtain credits and buy more, which would reactivate the economy. This worked for all but investors, who took their capital and took it to emerging economies, where interest rates would be more attractive for their returns. Despite achieving its goal, the measure could not last forever. At the end of last year, speculation began about the gradual increase of interest rates by the FED, as the Federal Reserve is called in the financial world.
We can take an example of the relationship between US dollar with Pakistan Rupee (PKR). The reasons why the price of the dollar has risen and the Pakistan Rupee has depreciated begin with these following situations. In other words, these situations can answer why dollar rate is increasing every day and .
Today Currency Rate In Pakistan
– As of the end of this policy, there will automatically start to be fewer dollars in the market, so this currency is priced more expensive in obedience to the law of supply and demand.
– Given the uncertainty of how much interest rates will rise, investors and individuals change their rupees for dollars to have financial security. This flight weakens emerging economies like ours.
Experts from private and public financial institutions have said that there are other factors that also play in the issue of why the dollar goes up or, failing that, the rupee goes down:
– The fall in oil prices, on which our economy depends in large part. This fall is global, but has been combined with a drop in the production and export of textile industry especially cotton fabric.
– The lack of optimism in international markets regarding the global economic recovery in Pakistan.
– The deceleration of the economies in Greece and, mainly, China.
But not everything in the situation is negative; there are some good reasons not to worry so much:
Great investment from China
Since 2010, China and Pakistan have agreed to enter into a $ 10 billion agreement deal and the business leaders (from the two countries) have formalized the deal at the Marriot Hotel, Islamabad, which in 2008 a suicide bomb destroyed a truck and killed 60 people, leaving China with an investment of $ 20 billion.
The cooperation was aimed at boosting trade and investment that had been the main focus (at that time) of the first five-year visit by a Chinese prime minister to a nuclear-armed Muslim nation on the front line of the war with Al-Qaeda leaders as the biggest threat. Pakistan views China as its closest ally, and the deal is still seen as crucial to the crisis economy, which has been the toughest hit by the devastating floods in recent years and also by the slow growth of foreign investment.
The improving outlook for Pakistan’s economy as a whole
The International Monetary Fund (IMF) said Friday (June 16), Pakistan’s economic outlook is “good”, one of which is supported by China’s investment growth. However, the IMF has appealed to the potential for some of the risks still to exist in Pakistan’s recent economic progress. Optimism in Pakistan has been heightened thanks to last year’s IMF statement saying the country has risen from the crisis with stable economic conditions after completing the entire bailout program. Nevertheless, the IMF still warns that macroeconomic growth stability could erode and make the economic outlook risky. “The projection of Pakistan’s economic growth is good, with real gross domestic product (GDP) estimated to be 5.3 percent for 2016/2017 and will rise to 6 percent in the medium term driven by China’s high investment, rising energy availability and structural reforms that support growth economy, “the IMF wrote in its report released at that day. Nevertheless, the stability of macroeconomic growth may weaken and undermine the economic outlook.
Pakistani Prime Minister Nawaz Sharif has promised a boost in economic growth after winning a third term in 2013. Unaffected by the domestic debt burden of 182 billion dollars, Pakistan is optimistic to target annual economic growth of 5.7 percent for 2016/2017. The World Bank estimates Pakistan’s economic growth will reach 5.4 percent by 2018. Today, 1 Pakistani Rupee equals to 0.0095 US Dollar and is predicted to be better next year. Rate of dollar in Pakistan is now higher than in 2016 and the previous years.
All of the above situations affect the increase in the value of the dollar against a country. In this case we can take Pakistan as one example because this country is classified as an unstable country; any upheaval can affect (significantly) the country’s currency comparison with the dollar. However, conditions in Pakistan can explain to us all about the factors why the dollar keeps increasing day by day. USD and GBP are two currencies with high exchange rates against many other currencies but since USD is always used in almost all global trading, the USD added rate (year over year) is higher, although up to now the exchange rate of GBP remains higher compared to USD. This is the main point where we can find the difference between dollar and pound. The exchange rate of a country’s currency is inseparable from the country’s role in international relations and since the United States is the most dominant country in that regard, their currency, US Dollar, will tend to increase day by day. We hope by reading this article you can be better in understanding some possible factors of up-and-down a country’s exchange rate.