US dollar retracts against Pakistani rupee

KARACHI: On the first day of business week, dollar price declined by 15 paisa against Pakistani rupee in the open market.

According to Companies Exchange Association, the dollar was being sold for Rs156.55, while it was traded for Rs156.70 on Friday. Likewise, it is being traded for Rs157 in inter-bank. It may be noted that dollar had slightly risen by 3 paisa a day ago in inter-bank.

In September 2018, dollar was being traded at Rs134 and in November last year it was Rs142. At the end of the last year, dollar had reduced to Rs139.40.

In April 2019, dollar jumped to Rs141.50 and in June it rocketed to record high Rs151 and it continued its upward trajectory until it reached Rs164.

In July, dollar’s upward trend stopped and it held ground at Rs160 in interbank and at Rs161 in the open market. In August 2019, rupee fought back and slightly regained its strength against dollar at Rs157.20. At the end of September, dollar further dropped and it reached at Rs156.4.

What leads to currency depreciation?

Currency depreciation is loss of value of one currency against others in exchange rate system. There are several factors which lead to devaluation of a currency. The foremost among them is trade deficit.

When consumers demand foreign products you have to pay for that in foreign currency and since the international trade is done in US dollars your dollar reserves deplete paving the way for your local currency’s devaluation. The higher the foreign reserves are in the central bank, the value of the country’s currency will be more appreciated. Inflation in a country makes its currency to devalue. Political events and monetary policy also play key role in determining the value of a currency.

Last year between January and August, Turkish currency Lira sank drastically. A number of factors led to the devaluation including the United States doubling tariffs on steel and aluminum at the time when its economy was already struggling. The Turkish government also did not allow the central bank to raise interest rate.