Not really a rise of the phoenix moment, yet the appreciation of the Pakistani rupee against the US dollar is an uncommon occurrence. Reviewing month-end exchange rates between the local currency and the greenback from 1982 onwards, from a sample of 466 monthly observations, the rupee appreciated in a quarter of observations, while it lost value around 75 percent of the time.

During October 2020, the local currency appreciated by 3.4 percent against the dollar, which is its third-highest monthly appreciation since 1982. This spike is only eclipsed by a 6.6 percent jump recorded in March 2014, and a four percent hike in October 2001. On average, the currency depreciates by 0.6 percent on a monthly basis, largely tying up with annual average depreciation of seven percent.

The scatterplot shows that the monthly movement of the rupee against the dollar usually remains around its mean of 0.6 percent, mostly depreciating, rather than gaining value. Even in the case of outliers, depreciation outlier events outweigh appreciation events a by a significant margin. The magnitude of depreciation is also much higher than that of appreciation, on a monthly, as well as on a rolling three-month basis. Anecdotal observations and heuristics that the local currency mostly depreciates is further supplemented by thirty-eight years of empirical data of monthly movements.

The recent run-up of Pak Rupee is underpinned by multiple factors, from improving exports and remittance proceeds, to lower oil prices and contraction in imports. A move towards market-oriented approach by the central bank with minimal intervention is also being touted as a key factor, with the market determining the rate on the basis of demand-supply dynamics.

With a Real Effective Exchange Rate of 94.1199 as of September 2020, the local currency had been relatively undervalued for a while now – the recent strength in its value has pushed it closer to its fair value. Just how long it can keep up the trend, is anyone’s guess!