The US dollar dealt the rupee a heavy blow shortly after it lost some value in the morning session, preventing it from making any gains against it. In Wednesday’s interbank trading, the dollar recovered and increased by Rs2.09. The US dollar, which began losing value before the Eid holidays, continued to decline today on the first day of business after a five-day break, losing 41 paisas by 10:30 am. However, the strong dollar soon began to drag down the rupee, and by midday, it had appreciated by Rs2.09 to reach Rs210 in interbank trading. The greenback delivered some heavy blows to the Pakistani currency during the first week of this month but towards the end, it lost eight paisas in its value on Thursday (July 7) and settled for Rs207.91. The State Bank last Thursday (7/7), amid expectations of further tightening due to a higher inflation outlook, increased the key interest rate by 125 basis points, bringing it to 15 percent, in an effort to control inflation and stop the depreciation of the Pakistani rupee. According to SBP Acting Governor Murtaza Syed in an interview with Bloomberg, with inflation at multi-year highs globally, Pakistan is taking prompt, audacious, and decisive action to cool its economy and avoid a de-anchoring of inflation expectations. It was noted that the rupee began to appreciate against the dollar in the interbank market after the announcement of the Memorandum of Economic and Financial Policies (MEFP) received from the IMF for the combined 7th and 8th reviews on June 28. But as the days pass and the IMF deal appears to be in a rut, market sentiment continues to veer toward the negative side. The stalled IMF tranche has become even less likely as a result of media reports that Prime Minister Shehbaz Sharif would soon lower gasoline prices in conjunction with falling Brent oil prices internationally. Because there cannot be a significant improvement in the external sector within a year, the rupee, which lost 30% of its value against the US dollar in FY22, may lose a little more value in FY23. In addition, the rupee is under pressure due to the unusually high trade deficit of $48.2 billion in FY22.