The rupee-dollar parity now stands at Rs 99.90 in the interbank market which had touched over Rs 111 few months back and was over Rs 105 last week.
"Everyone wants to sell their dollars now. Not many are buying. This trend will continue as of now," a leading Islamabad-based exchange firm owner said.
He was buying one US dollar at Rs 100 yesterday which was lower than the interbank rate of Rs 101 at that time.
An inflow of investment in fiscal year 2013-14 also helped shift market sentiments in favour of the rupee.
According to the State Bank of Pakistan, the country received foreign direct investment (FDI) of USD 523 million in the first seven months of 2013-14 and USD 106.9 million in January alone.
While further appreciation of the rupee will contain inflation, a stronger currency will make exports less competitive.
A statement released last evening by Finance Minister Ishaq Dar, who had emphasised that he will bring down the rupee-dollar parity to Rs 98, said the government has implemented concrete steps to improve overall external position by ensuring substantial capital and financial inflows in the country.
As a result, forex reserves of Pakistan have improved substantially in the last one month. This has been made possible by not only receiving larger inflows from multilateral and bilateral resources, but also through attracting forex flows through the capital markets and better home remittances," he said.
"I am very pleased to inform that the forex reserves of the country have improved from USD 7.59 billion as on February 7, 2014 to USD 9.37 billion as on March 7, 2014," Dar said.
"As you know that in the first half of FY14 there was some drain on the foreign exchange reserves mainly on account of timing of large debt repayments and we also saw some speculative tendencies putting pressure on the value of rupee.
"However, we have all seen the recent positive results of our efforts and the resultant reversal of the speculative positions," he added.
Dar stressed that the government is following a carefully planned strategy to attract forex inflows from different sources.