KARACHI: The dollar on Wednesday crossed the Rs101-level, both in the inter-bank and open markets, shattering the confidence the rupee gradually gained during the last six months.

The dollar was traded at Rs101 in March. On Wednesday it was as high as Rs101.30 in inter-bank while the open market was not different as it followed the same path that took the dollar to cross Rs101.

Currency dealers said that buyers were making cautious buying in accordance with their needs, amid no panic while sellers were absent. Importers and speculators were key players behind the fast appreciation of dollar despite no significant change in the foreign exchange reserves of the country.

The State Bank holds over $9.1 billion and commercial banks’ holding is more than $5bn.

“It is difficult to assess the causes of dollar’s appreciation, but the fact is that the local currency has lost confidence,” said Atif Ahmed, a currency dealer in the inter-bank market.

In the second half of the fiscal year 2013-14, the local currency surprisingly gained 12 per cent against the dollar, a record in the history of exchange rate regime. However, the current wave of uncertainty led the rupee to fall against the dollar.

Pressure mounted form the first week of August and the local currency slipped to Rs99 against the dollar on Aug 11. It fell to Rs100 a few days back and fell beyond Rs101 on Wednesday.

Currency dealers said that the dollar supply had stopped since exporters wanted to get maximum benefit in the current situation while remittances may also see some delay.

“Markets don’t like political uncertainty. IMF and Pakistan haven’t been able to conclude a timely review towards the 4th tranche. Unfortunately, things are stacked up against the rupee at the moment,” says Faisal Mamsa of Landmark Capital.

“Pakistan’s political breakout is being broadcast far and wide. This episode is going to adversely affect Pakistan’s economy and FDI for a long time. Moody’s report acknowledges Pakistan’s reforms, but cautions of political instability in country’s progress,” says Eman Khan of Aerari, an application that tracks markets.

Published in Dawn, August 21st, 2014