India, Pakistan, global markets and oil - the losers in recent global events

Jameel Ahmad, global head of Currency Strategy & Market Research at FXTM, analyses the losers in recent global events
India, Pakistan, global markets and oil - the losers in recent global events
The IMF has downgraded global growth for the first time in two years (Getty Images)
By Jameel Ahmad
Sun 21 Oct 2018 11:23 AM

Let’s recap on events over the past two weeks

The past 14 days of trading saw the greatest sell-off in global financial markets since February 2018. The week also saw US treasury yields rise to their highest level since 2011, President Trump unleash his wrath on the Federal Reserve over US interest rate policy once again, and an IMF downgrade
to global growth for the first time in two years.

Among all the different layers of financial market volatility, stress in emerging markets is one of the reasons behind the lower global growth expectations from the IMF. Speaking of emerging markets, the currencies of both India and Pakistan remain under the radar while oil markets remain volatile in the lead up to re-imposed sanctions on Iran starting from next month.

Why has Pakistan been in the financial headlines recently?

Reports began to circulate on October 8 that Pakistan’s Prime Minister Imran Khan approved a proposal to approach the IMF for financial aid, which was reported to be later confirmed from Finance Minister Asad Umar.

How have investors reacted?

It had been widely reported for some time that the finances of Pakistan remain in rough shape but investors still reacted negatively to this development, which represents the 13th time Pakistan has approached the IMF for help since the late 1980s.

Can the Pakistani rupee recover any time soon?

While Pakistan might be no stranger to approaching the IMF for monetary help, this has resulted in the Pakistani rupee crashing to further record-lows against the US dollar. We are doubtful that the Pakistani currency can recover before investors notice structural reforms in Pakistan. 

What about the Indian rupee, it has also hit new record-lows – is this because of the financial situation in Pakistan?

Not at all. And the reasons behind the resumption of the Indian rupee reaching new record lows against the dollar couldn’t be any further related to the financial distress within Pakistan.

Why has the Indian rupee hit new record-lows, then?

The external environment remains very challenging for India. The combination of prolonged strength in the dollar, a widening currency-account deficit and an ongoing rally in the price of oil are just a few of the many reasons behind the selling pressure on the Indian rupee.

Jameel Ahmad, Global Head of Currency Strategy & Market Research at FXTM, analyses the losers in recent global events

 

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