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Karachi: The Pakistan rupee strengthened against the dollar on Tuesday as President Pervez Musharraf's resignation sparked hope political tension was easing, but some were dubious about its outlook.
The currency strengthened as much as two rupees in early trade against the dollar to 73.30/60, compared to its close on Monday of 75.30/45. By the end of trade, the rupee had slipped a bit and was quoted at 74.53/60.
Investors said they were initially hopeful Musharraf's resignation on Monday would ease political tensions in Pakistan, and improve the country's investment climate. The rupee has strengthened 2.8 per cent since the resignation.
But initial jubilation over the move was waning as investors turned sceptical about whether the coalition government can manage to turn the economy around, or even stay intact.
"The focus is likely to shift towards the longevity or sustainability of the coalition, especially with the president no longer around," said Imtiaz Gadar, an analyst at JPMorgan.
Temporary
Gadar said the "knee-jerk" positive reaction for the rupee and Pakistani stocks was likely temporary.
Pakistan's sovereign bond spreads stayed high yesterday, reflecting investor doubts over whether the government can tackle the urgent political and economic problems.
The country's five-year credit default swaps were bid at 700 basis points, little changed following Musharraf's resignation.
This means investors will need to pay $700,000 a year for protection against a default in $10 million of the country's underlying debt.
Pakistani shares jumped as much as 3.2 per cent on Tuesday to the highest level in three weeks in early trade before concerns over Pakistan's sickly economy pared gains.
Pakistan is struggling with widening trade and fiscal deficits, soaring inflation, and falling foreign exchange reserves depleted by high oil prices. The shaky economy has dragged on the rupee, which has lost over a fifth of its value against the dollar this year.
The currency slid to record lows against the dollar for five consecutive sessions last week, forcing the central bank to call on commercial banks on Friday to bring $200-$220 million worth of overdue export revenues back into Pakistan.
Expectations of an inflow of export revenues into Pakistan helped the rupee rebound yesterday, one trader said.
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