Switzerland surprised markets with first rate cut and the Federal Reserve followed through its rate cut plan  

Lebanese Forex Market

Lebanese authorities announced the decision of unifying the LBP exchange rate against USD at 89,500 starting Feb 16 2024. This rate represents the BDL’s electronic platform rate which is used for calculating commercial banks and BDL’s balance sheet although the official exchange rate remains for the moment at USD/LBP 15,000.

The Lebanese exchange rate has maintained a relatively stable exchange rate of approximately 89,700 USD/LBP in the parallel market by March 22, 2024. It’s crucial to recognize that this stability isn’t backed by robust fundamentals despite recent approval of the 2024 Government Budget. Given the ongoing financial crisis and the absence of a recovery plan, Lebanon’s future remains uncertain and unstable.

As for the Euro/LBP currency pair, the Euro depreciated against the LBP with the currency pair going from last week €/LBP 97,438.65 to €/LBP 96,749.5 by March 22, 2024. The Nominal Effective Exchange Rate (NEER) of the Lebanese pound, however marginally decreased by 0.21% standing at 240.81 points on March 22, 2024.

International Forex Market

The USD Index (DXY) increased remarkably by 0.94% to stand at 104.407 on March 22, 2024 as the Federal Reserve has stuck to its rate cut plan. In more details, the Federal Open Market Committee (FOMC) announced after a two day policy meeting that it will maintain the benchmark interest rate between 5.25% and 5.5%. Fed officials announced the move along with three quarter percentage point cuts by the end of 2024, the first since the early stages of the Covid epidemic in March 2020.

The Euro depreciated against the dollar by 0.7% over the course of the week and reached EUR/USD 1.0811. Indeed, Euro/dollar has lost value as ECB President Christine Lagarde confirmed that the central bank was also honing in on a June rate cut.

The British Pound also depreciated against the dollar by 1.16% over the course of the week and reached GBP/USD 1.2591, as markets expected three rate cuts this year. Indeed, this week the Bank of England has held UK interest rates at 5.25% and signaled that it is edging closer to cutting borrowing costs, thus weakening sterling. In fact, inflation is moving into the right direction and it has fallen down to 3.4% in February 2024 from its peak 11.1% in October 2023.

For other currencies in Europe, the Swiss Franc- a traditional haven- depreciated by 2.04% by the end of this week to stand at USD/CHF 0.9015 on Friday March 22, 2024. Indeed, the Swiss National Bank cut its main interest rate by 25 basis points to 1.5% on Thursday, making it the first major bank to reduce the effect on tighter monetary policy.

Elsewhere, the USD/CNY depreciated by 0.47% to stand at USD/CNY 7.2268 on Friday March 22, 2024. Furthermore, the Canadian and Australian dollars depreciated respectively by 0.21% and 0.73% to stand at USD/CAD 1.3569 and AUD/USD 0.6512 by Friday March 22, 2024.

Furthermore, the Japanese Yen depreciated by 1.68% over the course of the week to stand at USD/JPY 151.53 on Friday March 22, 2024. This week, the Bank of Japan has ended an era of negative interest rates, raising borrowing costs for the first time since 2007 in a historic shift as the country puts decades of deflation behind it.  As such, Kazuo Ueda, the Bank of Japan (BoJ) brought an end to the ultra-loose monetary policy.

Commodities

Gold prices increased by 0.46% over the course of the week to reach $2,165.43/ ounce on Friday March 22, 2024. This week, the precious metal rose significantly to a record of $2,220.89/ ounce in early trading before dropping by 0.9%. While the speed of gold’s rally caught some market watchers off guard, the Fed appeared to reaffirm those bullish expectations on Wednesday. In fact, the central bank maintained its outlook for three rate cuts this year, suggesting it isn’t alarmed by a recent uptick in inflation.

Gold’s gains over the past five weeks have also been underpinned by long-standing supports including heightened geopolitical risks and buying by central banks, led by China. Chinese consumers have also been stocking up, purchasing gold coins, gold bars and jewelry as a way to safeguard their wealth from a property downturn and losses in the country’s stock market.

The precious metal has been trading for months around the $2,000 mark, a level only breached for the first time in 2020 as the global pandemic raged. Even more unusually, prices have traded at such elevated levels despite sky-high real interest rates that are typically bad for gold, which doesn’t pay interest.

Crude oil prices remained almost stable at $81 barrel on Friday March 22, 2024. Although, the price remained unchanged over the course of the week, markets are anticipating a near surge in crude oil prices. In fact, the world is using more oil than ever and demand is outpacing expectations, raising questions about how soon global consumption will peak. Indeed, there are areas where demand for crude oil is especially robust. For example, the rerouting of ships away from the Red sea alone has added 100,000 barrels a day to global demand.

Furthermore, India is also set to be a major contributor of additional usage. Its government expects the economy will expand 7% in the fiscal year beginning April, making it one of the fastest-growing major economies. The world’s third-biggest oil importer behind China and the US, India is set to be the single largest source of global demand growth between now and 2030, according to the International Energy Agency (IEA).

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