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Bangladesh’s foreign-exchange market has heated up after months of relative stability, with the taka weakening sharply against the US dollar amid rising demand for foreign currency.

The exchange rate rose by more than 40 paisa in a single day on Monday, reaching around Tk 122.80 per dollar in the interbank market, according to bankers and market participants.

The reference rate set by Bangladesh Bank also increased to Tk 122.55 per dollar at 5:00pm on Monday, up from Tk 122.38 recorded at the close of the previous trading session.

Bankers attributed the sudden spike to several factors, including pressure from importers settling obligations under Usance Payable at Sight (UPAS) letters of credit, pending government import payments, and increased dollar purchases by the central bank in recent days.

These developments have pushed many banks into short positions in their net open position (NOP), meaning their foreign-currency payment obligations exceed their available dollar inflows.

A central bank official said heightened geopolitical tensions in the Middle East have also prompted importers to settle UPAS obligations earlier and take forward cover to hedge against exchange-rate risks.

“As banks rush to meet overseas payment obligations, their demand for dollars has increased, putting additional pressure on the exchange rate,” the official said.

The official added that a pending government letter-of-credit payment also contributed to the demand spike, pushing the market rate to around Tk 122.60 per dollar.

To help stabilise the market, the central bank has paused its dollar purchases from banks since March 2 as part of its intervention strategy.

Bankers say the rising global price of petroleum products—linked to ongoing tensions in the Middle East—has also increased import bills and demand for dollars.

“Suddenly we have overseas payment obligations this week. So, we have no other option but to source dollars from the market. This demand surge may be causing the sudden price hike,” said the treasury head of a private commercial bank.

Banks with higher foreign-currency payments than earnings fall into short positioning, while those with surplus foreign-currency inflows are considered to be in long positions, he explained.

Some banks reported buying remittance dollars at as high as Tk 122.70 per dollar.

Importers are paying even higher rates for bills for collection, with banks charging between Tk 122.60 and Tk 122.80 per dollar.

Some bankers also alleged that certain exchange houses may have contributed to market volatility by creating an artificial shortage of dollars.

Meanwhile, the central bank has purchased about $5.49 billion from banks since July 13 last year to prevent excessive depreciation of the taka.

The dollar also strengthened in the kerb market, where money changers quoted rates above Tk 125.50 per dollar on Monday.