US Dollar Appreciated against the Euro amid Outlook of US Recovery

Lebanese Forex Market

To-date, the Lebanese Pound (LBP) remained steady within the official range of USD/LBP 1,514 to 1,514.5, with a mid- price of USD/LBP 1,514.25 in the week of February 05, 2021.

The peg to the US Dollar at the official rate continues to be supported by the Central Bank’s total foreign assets totaling $23.47B in January 2021. However, BDL intervenes by namely allowing small depositors to withdraw their dollar savings in LBP 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 80.5% in October 2020.

The Lebanese Lira continues to depreciate against the dollar and touched nearly 9000LBP/USD in the parallel market at the end of week of February 05, 2021. In fact, the pressure on Lebanese pound has increased amid the talks about reducing subsidies. Until now, Lebanese people can buy their essential goods like gas and wheat at the rate of 1507,5. However this situation is not likely to continue, as BDL cannot continue to subsidize the essential goods due to its limits in foreign currency. Lebanese politicians should form a new government as soon as possible, and apply the necessary reforms in order to stop the deterioration of the national currency.

As for Euro/LBP currency pair, the Euro depreciated against the dollar-pegged LBP with the currency pair going from last week’s €/LBP 1,826.56 to €/LBP 1,803.53 by the 5^th of February 2021. Moreover, the Nominal Effective Exchange Rate (NEER) of the LBP recorded a weekly uptick of 0.12% since 29 January 2021 to stand at 125.30 points on 5 February 2021.

International Forex Market

The Euro/USD recorded a decrease from last week’s €/USD 1.2116 to €/USD 1.1964 by February 05, 2021. The move came with a 1.26% decline in the euro and reached below what had seemed a resistance level of 1.20 earlier this week. The dollar regained its strength amid a view that the U.S economy’s recovery from COVID-19 pandemic will be stronger than in other countries. That view was reinforced by the decreasing number of Americans filing new applications for unemployment benefits last week. This seems to have eased the fears of a higher inflation rate, boosting the value of the US dollar. On other hand, the Eurozone is still suffering due to the huge number of COVID-19 cases, while the recovery from the pandemic is still far away amid the slow vaccination rollout.

Commodities

Gold price has decreased this week by 2.42% to stand at $1,846.09/ounce. In fact, a strong US dollar makes gold expensive for investors of other currencies.  In details, the US dollar index (DXY: measure of the value of USD against a basket of currencies) has increased from last week’s from 90.45 to 91.33. Further, the US weekly jobless claims fell for a third straight week, leaving the investors more bullish. However, our outlook believes that gold will rebound for the next coming weeks amid the talks about the giant US stimulus plan that will likely depreciate the dollar, and increase inflation.

Meanwhile, Crude oil price rose this week by 6.12% to reach $59.3/Barrel. In fact, the rollout of COVID-19 vaccines, is fueling hopes of lockdowns being eased, boosting fuel demand. But even demand optimists such as OPEC do not expect oil consumption to return to pre-pandemic levels in 2021.