The Pakistani rupee appreciated sharply against the US dollar on Friday, with data from reports marking it as the largest weekly appreciation in over 21 months. According to reports, the gain can be attributed to a shift in the State Bank of Pakistan’s (SBP) tactics to build foreign reserves and a crackdown on the trade of currencies in the black market.

As per the data, the rupee posted a 0.27 percent gain in value, settling at Rs283.45 against the dollar. This increase caused the weekly gain to reach 0.5 percent. 

Reports indicate that the rate in the open market has improved as well, coming to rest at 286.55 against the dollar. This was a result of the rupee being strengthened by Rs1.05. 

The SBP has reportedly decided to pull back on its dollar purchases, allowing the rupee to witness an increase in value. This is because the SBP uses rupees to buy up dollars to build up its reserves, resulting in an increase in the supply of rupees and consequently, a decrease in the currency's value.

Moreover, authorities have been targeting currency smugglers which has also allowed for the rupee to appreciate. The siphoning off of dollars out of Pakistan results in a decrease in their supply, causing the dollar to appreciate against the rupee.

Reports suggest that actions taken by law enforcement against illegal currency exchanges have also backed the surge in the rupee’s value. However, analysts have outlined the importance of robust remittance inflows, highlighting their impact on stabilizing the rupee's value.

Pakistan recorded a strong current account surplus of $2.1 billion for the fiscal year 2024–25 because of strong remittance inflows. For reference, a current account surplus usually leads to an increase in the value of the currency. This is because the currency experiences a surge in demand causing its price to balloon. 

As per recent reports, the Finance Minister’s adviser confirmed that remittance inflows played a key role in achieving the current account surplus, outlining how remittances ballooned to a staggering $38 billion during FY 2024-25.

Reports have suggested that remittance inflows logged a 27 percent growth rate on a year-on-year (YoY) basis. With throngs of Pakistani citizens likely to head abroad for better economic prospects in the coming periods, it is likely that remittance inflows will grow, applying appreciation pressures on the value of the rupee.