Dollar Demand Witnessed a Correction in the Lebanese Forex Market

Demand for the dollar saw a correction during the week in the Lebanese Forex market, after 2 weeks of dollar demand frailty. Consequently, the Lebanese pound’s peg against the dollar went up from $/LP 1,505-1,509 with a mid-price of $/LP 1,507 on May 29, to $/LP 1,507-1,511 with a mid-price of $/LP 1,509. Foreign assets (excluding gold) at the Central Bank decreased by a monthly 1.94%, from $38.48B by end-March to $37.73B by end-April. Meanwhile, the dollarization rate of private sector deposits stood at 65.25% in March 2015 compared to 65.71% in December 2014.

The Euro rallied by 2.73% against the dollar to €/$1.1259 compared to €/$1.0960 on the 29th of May. This could be on the back of Mario Draghi’s, speech, this week, stating that an agreement with Greece is looming closer than ever. However, analysts expect the bullish weakly trend of the Euro to overturn next week as Greece deferred on a 300M Euro payment to the IMF today.

Demand for gold fell during the week, despite the depreciating dollar over the week. Gold is becoming less attractive, as investors are swaying into equity markets of the US and China. Positive economic data in the US and the ongoing Chinese stimulus program is apparently boosting both stock markets. In turn, gold went down to $1,175.88/ounce from $1,189.85/ounce on the 29th of May 2015.

By Friday 5th of June, 2015, 12:30 pm Beirut time, the dollar-pegged LP depreciated against the euro going from €/LP 1,652.22 on the 29th of May to €/LP 1,697.29. The Nominal effective exchange Rate (NEER) declined by 0.43% to 163.74 points, narrowing its year-to-date gains to 11.15%.

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