US Dollar Up This Week Following Optimistic Progress on Covid-19 Vaccine

Lebanese Forex Market

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 $/LP 1,514.25 by the week of November 13^th 2020.

This week amid the formation of a Cabinet of specialists, the US sanctions imposed on former MP Gebran Bassil were said to complicate the government formation efforts. As such, the USD/LBP rate started to move upwards in the black market as of Monday.

Moreover, on Thursday, French President Emmanuel Macron sent envoy Patrick Durel to the Lebanese leaders, addressing the importance of speeding up the formation of a Cabinet of specialists to deliver urgent reforms as an essential move to unlock promised international aid; however, meetings are still being scheduled to lead positive results related to government formation.

It is worth mentioning that the lockdown starting November 14^th was agreed upon in efforts to stem the surging of Covid-19 cases and involves imposing the odd and even license plate rule for a period of two weeks.

As a result, the Lebanese are constantly living in political and economic uncertainty, by which the Lebanese pound fell further as of Friday the 13^th, trading at around LL7,625 on the black market.

The peg to the US Dollar at the official rate continues to be supported by the Central Bank’s total foreign assets totaling $25.43B in October 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 80.22% in September 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 1,786.58 to €/LBP 1,782.43 by November 13^th, 2020. Moreover, the Nominal Effective Exchange Rate (NEER) of the LBP recorded a weekly downtick of 1.03% to stand at 127.31 points over the same period.

International Forex Market

The Euro/USD went down from last week’s €/USD 1.1851 to €/USD 1.1824 by November 13^th, 2020.

Starting this week, the Euro edged lower against the U.S. Dollar as investors remained optimistic about progress towards a COVID-19 vaccine. We can note that the dollar might move downwards as uncertain news about how or when a vaccine could be rolled out continue.

Moreover, the Euro weakened in light of the resurgence of a second wave of Covid-19 cases in Europe and fears that more countries will re-impose lockdowns to curb the spread of the virus. These fears would outweigh any positive developments in Eurozone industrial production numbers, due later this week.

Commodities

Gold prices went down this week by 3.74% to reach $1,875.76/ounce as the US Dollar strengthened this week. In fact, the gold prices were affected by the rise in investors’ appetite to invest in the stock market, riskier assets, in hope for a speedy economic recovery following the positive news on possible Covid-19 vaccine.

Crude oil prices highly rose this week by 10.34% to reach $43.53 per barrel after positive news related to the Coronavirus vaccine took place, however, IEA added that it does not expect any real impact on oil demand until the second half of 2021. Moreover, on Wednesday the agency lowered its global oil demand estimate for the remainder of 2020, due to high coronavirus cases in the United States and elsewhere. In its November oil market report, the International Energy Agency (IEA) revised its estimates down by even more than OPEC.