Lebanese Forex Market
Since the onset of national civic protest in October 2019, the imposition of capital controls alongside the deterioration of the economy on multiple fronts have contributed to creating a dynamic foreign exchange parallel market in Lebanon.
To-date, the Lebanese Pound (LP) remains pegged to the US dollar within the official range US$/LP 1,514 to 1,514.5 with a mid-price of $/LP1,514.25 and is supported by the Central Bank’s foreign assets totaling $28.17 in mid- September 2020. However, BDL intervenes by namely allowing small depositors to withdraw their dollar savings in LP at the rate of 3,900 while keeping the rate of conversion into US dollars at the “official rate”.
Meanwhile, the dollarization ratio for private sector deposits increased from 76.02% in December 2019 to 80.16% in July 2020.
As for Euro/LP currency pair, the Euro depreciated against the dollar-pegged LP with the currency pair going from last week’s €/LBP 1,783.50 to €/LBP 1,756.10 by September 25, 2020.
In turn, the Nominal Effective Exchange Rate (NEER) of the LBP recorded a weekly uptick of 0.86% to stand at 128.53 points over the same period.
International Forex Market
The Euro/USD went down from last week’s €/USD 1.1831 to €/USD 1.1649 by September 25, 2020. In details, the greenback is holding onto gains as global sentiment remains fragile amid rising Covid cases and renewed lockdown measures in Europe. In the meantime, the euro weakened this week with investors concerned that a second wave of Covid-19 cases will halt the region’s nascent recovery. Also helping the flow away from riskier assets, a number of Federal Reserve policymakers warned that further government aid is needed to bolster the economy, with that stimulus looking very unlikely in the near term.
Commodities
Gold prices retreated this week as US dollar strength is weighing on precious metals. In fact, Gold has fallen back after hitting a record in August on massive stimulus programs, negative real rates and a weakening dollar. As a result, Gold prices dropped by a weekly 3.84% to close the week at $1,870.43/ounce. Factors pushing gold in the other direction include a rapid resurgence of COVID-19 in Europe, with the U.K. and France recording their highest yet daily new cases, U.S. President Donald Trump refusing to say whether he would agree to a peaceful transition of power should he lose the upcoming election, and higher-than-expected unemployment applications in the U.S. However, none of these were sufficient to lift gold prices up.
Crude oil prices slipped this week due to mounting worries about the impact on fuel demand of a widespread resurgence in coronavirus infections. In the United States, which has the highest death toll from the coronavirus pandemic and is the world’s biggest oil consumer, unemployment claims unexpectedly rose last week suggesting an economic recovery is flailing and pushing down fuel demand. In other parts of the world, daily increases of coronavirus infections are hitting records and new restrictions are being put in place that will likely limit travel and fuel demand. As such, Brent oil prices dropped weekly by 3.14% to $42.15/barrel.