“There was an oil payment of about $50 million which has added to the pressure on the rupee,” said a currency dealer.
The rupee ended at 88.65/75 to the dollar, compared with Tuesday’s close of 88.25/30. Dealers said the rupee was traded at 88.80 in the TOM (one-day forward) market.
“There are payments due for the rest of this week so the pressure is likely to continue,” said another currency dealer.
According to a poll conducted by Reuters last week, investors grew more bearish on most emerging Asian currencies in the last two weeks, as Europe’s debt crisis deepened.
Pakistan’s foreign exchange reserves fell to $16.96 billion in the week ending Nov. 18, after hitting a record $18.31 billion in the week ending July 30.
The rupee has lost 3.53 percent this year.
There were also concerns about relations between Pakistan and the US after a cross-border attack by NATO that killed 24 of the country’s soldiers at the weekend.
“If the relationship does deteriorate further, look for increased selling from foreign portfolio investors ... with the currency also likely to accelerate its recent slide toward a parity of 90 rupees to the dollar,” said Khalid Iqbal Siddiqui, director at Invest & Finance Securities Ltd.
Pakistan’s monetary policy is due to be announced later in the day, and analysts expect a cut of 50 basis points in the key policy rate, a move which may weaken the rupee.
There was also some concern following an assessment by the International Monetary Fund (IMF) that Pakistan’s economic outlook for the fiscal year ending June 2012 was “challenging,” dealers said.
In a statement last week, the IMF said that ongoing security concerns were likely to limit capital inflows.
Dealers said the rupee was under pressure despite increasing remittances from overseas Pakistanis, which rose to $1.02 billion in October, compared with $855.11 million in October 2010.
The local currency could also experience downward pressure in the days ahead due to a widening current account deficit, which stood at a provisional $1.5 billion in the July-Oct period, compared with $541 million in the same period last year.
Stocks ended higher but in thin volume as investors were on the sidelines ahead of the monetary policy announcement.
“The market remained dull throughout the day as investors continued to focus on the monetary policy,” said Samar Iqbal, a dealer at Topline Securities Ltd. 
The Karachi Stock Exchange’s (KSE) benchmark 100-share index ended 0.22 percent, or 25.89 points, higher at 11,532.83 on turnover of just 38.5 million shares.
In the money market, the overnight rate ended at between 11.50 percent and 11.75 percent, compared to the previous day’s close of 11.90 percent.