Dollar Demand in the Lebanese Forex Market Remained Stable During the Week

Demand for the dollar remained stagnant on the Lebanese Forex market during the week, as shown by the Lebanese pound’s peg against the dollar, which maintained a quote of $/LP 1,510-1,514 with a mid-price of $/LP 1,512. 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 1.13% against the dollar to €/$1.1360, considering the better position that Europe is in at this point in time. Athens did not default and funded their 750M Euro payment to the IMF, on Tuesday, by tapping into their Reserves (650M Euros). Despite the positive economic review of the US labor market for April, in which jobless claims registered the lowest level in five years, the dollar lagged behind the Euro for the 5th week running, bearing in mind that this is its longest losing streak since October 2013. Recent volatility in the US bond market amidst inflationary pressures and the uncertainty of when the Federal Reserve is going to hike interest rates might be the reason for the depreciating dollar. Worth mentioning that analysts speculate that the dollar will recover next week, as the current fall has been too excessive.

Demand for gold improved during the week on the back of the mentioned depreciating dollar and the bullish trend in international oil prices, where Brent crude oil saw a 1.8% weekly increase to $65.48/ barrel. Since gold is usually seen as a hedge for inflation, the price of gold went up to $1,216.17/ounce from $1,185.98/ounce on the 8h of May 2015. Gold prices are expected to fall in the upcoming week, with Chinese equity markets surging because of the Chinese Central Bank’s new stimulus program (decreasing the reserved required ratio to 18.5%).

By Friday May 15th, 2015, 12:30 pm Beirut time, the dollar-pegged LP depreciated against the euro going from €/LP 1,693.37 on the 8th of May to €/LP 1,712.52. The Nominal effective exchange Rate (NEER) lost 0.55% to 162.79 points, narrowing its year-to-date gains to 10.50%.

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