Currencies Fluctuated Amid Major Central Banks’ Interest Rates Revision

Lebanese Forex Market

The Lebanese Pound (LBP) remained steady within the new official rate of USD/LBP 15,000 by September 22, 2023.

On the parallel market, the Lebanese national currency remained steady this week with almost same average as previous week of 89,604 LBP/USD. The pair LBP/USD recorded a minimum of 89,500 LBP/USD and a maximum of 89,800 LBP/USD during the course of this week. Although the Lebanese parallel market rate is stable, a major uncertainty remains regarding the Lebanese exchange rate, mostly due to the country’s political situation and the recent announcement of the Central Bank’s plan to replace its exchange rate platform Sayrafa with Bloomberg.

As for the Euro/LBP currency pair, the Euro depreciated further against the dollar-pegged LBP with the currency pair going down from last week €/LBP 15,982.50 to €/LBP 15,970.50 by September 22, 2023. The Nominal Effective Exchange Rate (NEER) of the Lebanese pound registered a slight increase during the course of the week to stand at 238.09 points on September 22, 2023.

International Forex Market

This week, the dollar Index regained its upward momentum by the end of the week, reaching 105.483 on Friday September 22, 2023. This resurgence in the index followed a brief dip on Thursday, driven by renewed risk aversion and the ongoing increase in US bond yields. In fact, the Fed decided to keep its policy rate unchanged, but updated guidance indicates its intention to maintain higher rates for an extended period. While there is a possibility of one more rate hike in late 2023, weak economic activity and low inflation in Q4 might discourage the Fed from doing so. Furthermore, it anticipated that the aggressive tightening measures taken thus far might negatively affect the US economy in the coming year, prompting the Fed to consider cutting rates by more than the previously planned 50 bps by the end of 2024.

In turn, the Euro currency remained under selling pressure and traded in negative territory for this week. The EUR/USD pair currently trades near 1.0647 down by 0.13% from previous week. Traders are awaiting the PMI data for the Eurozone and the US while the ECB might conclude its series of interest rate hikes and maintain the status quo until at least July of the following year. It is important to note that the ECB recently raised its key interest rate to a historic 4% on September 14. Consequently, this move could exert downward pressure on the Euro relative to the US Dollar.

As for the UK, the British pound struggled to extend recovery and ended the week 1.23% lower at GBP/USD 1.2276 compared to previous week. The drop was driven by BoE’s concerns regarding risk of a potential slowdown as the UK economy is seen slowing down with firms restrict themselves from adding operating capacity and labor. Moreover, this week, the BoE kept room open for further policy tightening in case inflation remained stubborn.

For other currencies in Europe, the USD/CHF edged higher by 1.14% by the end of this week to stand at USD/CHF 0.9050 as the Swiss National Bank surprised markets by keeping its policy rate unchanged at 1.75% while market was pricing a hike to 2%.

Meanwhile, the USD/JPY pair rebounded on the back of the policy rate decision of BoJ and recorded a 0.39% gain to stand at USD/JPY 148.06 on Friday September 22, 2023. As broadly expected, BoJ sustained its current interest rates at -0.1%, however the bank might ponder its easy monetary policy once inflation reaches the 2% target.

Elsewhere, the Australian depreciated by 0.66% from the previous week to stand at 0.6426 AUD/USD. In fact, business activity in Australia returned to growth in September with PMI improved from 47.8 in August to 50.5 for September. However, the manufacturing PMI remained in contraction territory and declined to 48.2 pushing the Aussie down against the USD. Furthermore, the Canadian dollar extended its downside around 1.3465, by Friday September 22, 2023, driven by a rebound in oil prices, as the country is the leading oil exporter to the United States.

Commodities

Gold prices experienced a slight increase on Friday September 22, 2023, to stand at $1925.33/ounce, but it remained close to a one-week low reached in the previous session. This was primarily due to the strength of the U.S. dollar and rising Treasury yields, which were benefiting from the Federal Reserve’s aggressive stance on interest rates.

Oil prices were volatile this week due to conflicting factors, including concerns about the supply, heightened by Russia’s ban on fuel exports, and apprehensions about reduced demand resulting from stricter monetary policies in the United States and Europe. As such, oil prices were on tract for a weekly decline by 0.59% to stand at $93.81/barrel on Friday September 22, 2023.