| 16/10/2020 | 09/10/2020 | %Change | YTD | |
| Euro / LP | 1,764.60 | 1,776.79 | -0.69% | – |
| Euro / Dollar | 1.1705 | 1.1786 | -0.69% | – |
| NEER Index | 128.75 | 128.32 | 0.34% | 9.36% |
Lebanese Forex Market
Recent challenges surrounding the Lebanese forex market include BDL’s circular that called on lenders to limit their withdrawals based on the size of accounts they have at BDL. As a consequence, Lebanese banks decided this week to limit cash withdrawals on their customers holding LBP accounts. We note that the worsening of the Covid-19 outbreak, potential of further social unrest, uncertainties over government’s commitment to reform and its ability to provide external funding pose downside risks the Lebanese currency.
To-date, the Lebanese Pound (LP) remained steady within the official range of US $/LP 1,514 to 1,514.5, with a mid-price of $/LP1,514.25 by the week of October 9th 2020. The peg to the US Dollar at the official rate continues to be supported by the Central Bank’s total foreign assets totaling $25.93B in 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”.
In turn, the dollarization ratio for private sector deposits increased from 76.02% in December 2019 to 80.18% in August 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 1,776.79 to €/LBP 1,764.60 by October 16, 2020. Moreover, the Nominal Effective Exchange Rate (NEER) of the LBP recorded a weekly uptick of 0.34% to stand at 128.75 points over the same period.
International Forex Market
The Euro/USD went down from last week’s €/USD 1.1786 to €/USD 1.1705 by October 16, 2020.
The Euro (EUR) traded lower on Thursday as the Dollar strengthened given high demand for safe-haven as the fiscal stimulus lacked progress during this week. In details, Investors hoped a deal could be reached but many still believe that Stimulus plans are unlikely to materialize before the Nov. 3 election.
Importantly, the EUR depreciated as a result of the imposed restrictions due to spiking new Covid-19 cases in many European countries. Moreover, the Euro depreciation might continue should upcoming Euro-area inflation data continue to show slow consumer price growth; which in turn result from the delay in summer sales and marked depreciation in energy prices. It is worth mentioning that the Euro area annual inflation measured -0.3 % in September 2020 down from -0.2 % in August 2020.
Commodities
Gold prices rose this week by 0.78% to reach $1907.82/ounce as US 10-year Treasuries pushed marginally lower. It is worth mentioning that concerns about the surging cases of the pandemic and the increase of uncertainty regarding fiscal and monetary stimulus is leaving investors’ gold appetite strong.
Crude oil prices slipped this week by 0.42% to reach $42.74 per barrel, as participants reduced their positions on low demand. In fact, resurgence of COVID-19 cases in the U.S. Midwest and Europe pose a challenge for the Organization of Petroleum Exporting Countries (OPEC+). As a result, OPEC+ has restrained supply by cutting 7.7 million barrels per day due to hold through December which led to raising worries about fuel Demand growth.