Gold prices rise as investors are expecting Fed policymakers to pause interest rate hikes

Lebanese Forex Market

The Lebanese Pound (LBP) remained steady within the new official rate of USD/LBP 15,000 by June 2nd, 2023.

On the parallel market, the Lebanese national currency remained steady this week with an average of 94,434 LBP/USD. The pair LBP/USD recorded a minimum of 93,800 LBP/USD and a maximum of 94,700 LBP/USD during the course of this week. The Lebanese Lira remained steady due to Sayrafa interventions by the Central Bank.

As for the Euro/LBP currency pair, the Euro appreciated against the dollar-pegged LBP with the currency pair going from last week €/LBP 16,086 to €/LBP 16,144.5 by June 2, 2023. The Nominal Effective Exchange Rate (NEER) of the Lebanese pound went up by 1.59% weekly to stand at 121.08 points on June 2, 2023.

International Forex Market

This week, major currencies gained ground against the US dollar as the dollar index experienced a weekly decline of 0.65%, reaching 103.528 on June 2nd, 2023. Notably, bond traders are shifting their concerns from the US debt limit to the implications of its increase on money markets. The prevailing worry is that, with a potential agreement in the works, the Treasury will soon raise funds by selling over $1 trillion worth of bills throughout the third quarter, as estimated recently. This influx of supply is expected to drain a significant amount of liquidity from financial markets, thereby exerting additional pressure on a financial system that is already displaying signs of strain due to bank collapses and the Federal Reserve’s actions of increasing interest rates and reducing its balance sheet.

The Euro appreciated against the dollar by 0.36% to $1.0762. In fact, inflation in the euro zone dipped by more than expected to 6.1%, its lowest level in more than a year. However, European Central Bank President Christine Lagarde reported that further rate hikes are needed to tame inflation and reach its 2% target. Indeed, the easing of inflation in the Eurozone is primarily driven by lower energy costs and investors and economists widely predict another quarter-point move on June 15 and reckon there will probably be one more to round off the cycle.

The British pound also appreciated against the US dollar by 1.49% to stand at $1.2528 by the week ending June 2nd, 2023. In fact, the Pound traded above $1.25 and was set for a sixth day of gains, the longest winning streak this year.

This week, the Swiss Franc, Japanese Yen and Australian dollars also appreciated against the US dollar by 0.14%, 0.77% and 1.57% respectively to stand at CHF 0.9044, JPY 138.98 and $0.6619 by the week ending June 2nd, 2023. Meanwhile, the Chinese Yuan and Canadian Dollar depreciated, over the week, against the US dollar by 0.16% and 1.45% respectively to stand at JPY 7.0752 and CAD 1.3417 by June 2nd, 2023.

Commodities

Gold is on track for its best week since early April as investors are expecting Federal Reserve policymakers to pause interest rate hikes ahead of their June meeting. Gold price increased by 1.59% weekly to stand at $1,977.33/ ounce by June 2nd, 2023. In fact, Federal Reserve Governor Philip Jefferson signaled the central bank is inclined to keep interest rates steady at its next meeting in June to give policymakers more time to assess the economic outlook, but such a decision wouldn’t mean hikes are finished. Furthermore, the cap on government spending in the deal to raise the US debt limit could add risks of a downturn, which would help support bullion.

Crude oil prices fell remarkably by 2.68% over the week to stand at $70.72/barrel by June 2^nd, 2023.  In fact, ahead of key OPEC+ meeting on June 4, Saudi Arabia and Russia are at odds about output policy. Indeed, Riyadh has grown increasingly frustrated with Russia, which apparently has not kept its end of the deal and isn’t reducing oil production as pledged, complicating the Saudi efforts to lift oil prices.