The ECB’s “Stimulus Package” Disappoints Market Participants: Euro Depreciated this Week

Lebanese Forex Market 

The Lebanese Pound (LP) remained steady within the official range of $/LP 1,514 – 1,514.5 against the dollar, with a mid-price of $/LP 1,514.25 by the week ending March 13th 2020.

The peg also continues to be supported by the Central Bank’s total foreign assets, which settled at $35.79B by February 2020.

In turn, the dollarization ratio of Private sector deposits surged to 76.70% in January 2020, up from 70.87% recorded during the same period in 2019.

Across the week, the Euro depreciated vis-à-vis the dollar-pegged LP as the currency pair went from last week’s €/LBP 1,705.58 to this week’s €/LBP 1,677.5. In turn, the Nominal Effective Exchange Rate (NEER) of the LP added 1.55% to reach 119.92 points by the week ending March 13th 2020.

International Forex Market

The Euro/USD currency pair went from last week’s €/USD 1.1314 to €/USD 1.1128 by March 13th. In detail, investors expected the ECB to cut rates this week, in tandem with the rate cuts of the FED and the Bank of England to likewise stimulate the Euro economy battered by the coronavirus pandemic. However, Lagarde’s decision kept interest rates unchanged and announced, instead, a stimulus package to support bank lending and expanded the ECB’s asset purchase program by the euro equivalent of $135.28B. Disappointed investors sold off the Euro as they expect a major shock to the region’s already-frail-growth – especially noting that Italy, one of the biggest euro area economies, is grappling with the highest number of cases outside China and announced a nationwide lockdown.

Meanwhile, stressed investors demanded more US dollars for liquidity purposes amid the heightened market volatility.

Commodities

The price of gold eased this week from last week’s record-highs as investors rushed to cover margins for their big losses on the stock markets this week, with the continued global spread of the coronavirus. In fact, international gold prices retreated by a weekly 4% to $1,580.3/ounce by March 13th.

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