Gold Rising Again above $2,330 /Ounce Awaiting Today’s March US Personal Consumption Expenditure Price Index

Lebanese Forex Market

Lebanese authorities announced the decision of unifying the LBP exchange rate against USD at 89,500 starting Feb 16^th, 2024. This rate represents the BDL’s electronic platform rate that 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 April 26^th, 2024. It is crucial to recognize that this stability is not backed by robust fundamentals. 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 appreciated against the dollar-pegged LBP with the currency pair going from last week €/LBP 95,353.3 to €/LBP 96,194.6 by April 26^th, 2024. The Nominal Effective Exchange Rate (NEER) of the Lebanese pound dropped by 0.07% standing at 242.45 points on April 26^th, 2024.

International Forex Market

The USD Index (DXY) slightly declined by 0.62% to stand at 105.49 on April 26^th, 2024 as US economy expanded by 1.6% annually in the first quarter of 2024 (the lowest growth in two years) and below the anticipated growth of 2.5% annually.

The Euro slightly appreciated against the dollar by 0.83% over the course of the week and reached EUR/USD 1.0742 by April 26^th, 2024. The latest PMI survey showed expansion in Eurozone business activity with Germany returning to growth following 9 months of contraction.

The British Pound appreciated against the dollar by 1.27% over the course of the week and reached GBP/USD 1.2528 by April 26^th, 2024. Indeed, UK PMI data showed that British business activity grew in April at the highest rate since May 2023, driven by a sharp increase in service sector output. In addition, markets expect the first interest rate cut to happen in August instead of September and this was confirmed by the suggestion of Bank of England Deputy Governor Dave Ramsden that there is no more risk of British high inflation.

Furthermore, the Japanese Yen depreciated by 1.25% to reach USD/JPY 156.56 by April 26^th, 2024. The Japanese yen drops to its lowest level in decades after the Bank of Japan (BoJ) kept its monetary policy unchanged with interest rates unchanged at around 0% – 0.1% on April’s meeting after the first increase in interest in March since 2007 following 8 years of negative interest rates. In addition, a weaker Japanese Yen leads to higher import costs, affecting household spending and therefore increasing inflation.

For other currencies in Europe, the Swiss Franc depreciated by 0.11% by the end of this week to stand at USD/CHF 0.911 on Friday April 26^th, 2024. Elsewhere, the Chinese Yuan and Australian dollar depreciated respectively by 0.09% and 2.01% to stand at USD/CNY 7.2466 and AUD/USD 0.6546 on Friday April 26^th, 2024. Finally, the Canadian dollar appreciated by 0.78% to stand at USD/CAD 1.3646 by Friday April 26^th, 2024 as March annual inflation in Canada was below expectation, recorded 2.9%, and thus may influence Bank of Canada to consider interest rate cuts that weakens the Canadian dollar.

Commodities

Gold prices decreased by 1.78% over the course of the week to reach $2,348.01/ ounce on Friday April 26^th, 2024. The Gold price has seen an uptick, rising above $2,330 / ounce as investors digested several mixed US economic data. The increase in consumer inflation, revealed on Thursday, by 3.4% annually compared to an increase of 1.8% annually in the fourth quarter of last year caused investors to value the Federal Reserve’s monetary policy where it is expected that the Fed keep its restrictive monetary policy for a longer period. In addition, lower than expected jobless claims help the Fed hold the high interest rates where number of people claiming unemployment benefits decreased to its lowest level in 2 months and recorded 207,000 and less than the expectation of 214,000.

Although keeping interest rates high decrease the appetite for gold purchase, people are buying gold to hedge against rise in consumer inflation that caused increased price pressures. Lastly, investors are waiting for March PCE figures to be revealed later today for clearer hints on Federal Reserve’s monetary policy outlook.

Crude oil prices increased by 0.19% and reached $83.92 on April 26^th, 2024. The increased demand outlook and continued supply risks related to Middle East geopolitical tensions as Israel increased its airstrikes in Rafah although its allies are discouraging it from attacking Rafah.

In addition, news from Russia revealed that it has assured to extend its OPEC+ crude oil cuts in the second quarter aiming to stabilize the global market prices. As per sources, 16.8% of Russia’s oil wells were inactive (32,400 inactive wells out of 193,000 wells) at the end of March 2024 compared to 16.9% at the end of February 2024. Moreover, Russia is anticipated to decrease production by 350K barrels / day in April, 400K barrels / day in May, and 471K barrels / day in June.

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