Gold Bounced Back Amid Inflation Concerns

12/03/202105/03/2021%ChangeYTD
Euro / LP1,809.181,794.460.82%-1.62%
Euro / Dollar1.20011.19040.82%-1.62%
NEER Index126.59126.340.20%1.40%

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 March 12, 2021.

In turn, the dollarization ratio for private sector deposits increased from 76.02% in December 2019 to 80.37% in December 2020.

The Lebanese citizens are in despair. In fact, since the government decided to default on Eurobonds on March 2020, none of the promises it reform has been undertaken. Further, the Lebanese pound has lost more than 85% of its value and reached $10.800/LBP on 12 March 2021. All this is happening while the central bank’s reserves are drying up, and it may soon be insufficient to meet our import needs.

As for Euro/LBP currency pair, the Euro appreciated against the dollar-pegged LBP with the currency pair going from last week’s €/LBP 1,794.46 to €/LBP 1,809.18 by March 12,2021. Moreover, the Nominal Effective Exchange Rate (NEER) of the LBP recorded a weekly uptick of 1.40% since 05 March 2021 to stand at 126.59 points on 12 March 2021.

International Forex Market

The Euro/USD recorded an increase from last week’s €/USD 1.1904 to €/USD 1.2001 by March 012, 2021. The safe-haven dollar has decreased against the euro as investors are heading to more riskier asset, amid the worldwide vaccination rollout.  However, our outlook is that the euro will depreciate in the upcoming weeks as the European Central Bank (ECB ) is willing to print more money to keep Eurozone yields down, and to keep borrowing cheap.

Commodities

Gold price has bounced back this week and witnessed an uptick by 0.22% to reach $1,699.1/ounce. In fact gold price increased this week due to weakness in dollar index and US President Joe Biden signing a $1.9-trillion stimulus bill that may increase inflation rates in the future. We expect that the gold price will increase in the upcoming weeks as the dollar weakens more due to the huge stimulus plan that will have some inflationary effect on the economy. In fact, reviving the economy is not just about printing money, as other measures should be taken in order to restrain the inflation rate.

In addition, Crude oil prices rose this week by 2.49% to reach $69.67/Barrel.  In details, several reasons are pushing the price of crude oil forward; the bullish economic environment is increasing amid the vaccination rollout, which in return increases the demand for crude oil. However this increase might not be healthy for the economy. In details, some investors are expecting that inflation rate will rise sharply so they prefer to possess more commodities like crude oil in their portfolio.

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