The Japanese Yen has depreciated significantly against major currencies, especially the US Dollar

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.

The Lebanese exchange rate has maintained a relatively stable exchange rate of approximately 89,700 USD/LBP in the parallel market by May 10^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 96,284.1 to €/LBP 96,427.3 by May 10^th, 2024. The Nominal Effective Exchange Rate (NEER) of the Lebanese pound slightly dropped by 0.04% standing at 227.39 points on May 10^th, 2024.

International Forex Market

The USD Index (DXY) slightly rose by 0.25% to stand at 105.29 on May 10th, 2024 although, jobless claims surged to their highest level since August 2023, sparking concerns over the health of the labor market and influencing expectations of a potential rate cut by the Federal Reserve later this year.

The Euro slightly appreciated against the dollar by 0.12% over the course of the week and reached EUR/USD 1.0774 by May 10, 2024. Meanwhile, the British Pound depreciated against the dollar by 0.11% over the course of the week and reached GBP/USD 1.2533 by May 10th, 2024. Although, Britain bounced back strongly from a shallow recession, as Gross domestic product jumped by 0.6% in the first quarter of 2024, according to preliminary data from the Office for National Statistics (ONS). The increase follows falls of 0.3% in the fourth quarter and 0.1% in the third quarter of last year. That was the best reading since late 2021, when the UK loosened lockdown restrictions, and higher than the 0.4% expansion forecast by economists, providing some relief for Prime Minister Rishi Sunak who has so far struggled to deliver on his promise to grow the economy.

Furthermore, the Japanese Yen depreciated by 1.73% to reach USD/JPY 155.7 by May 10^th, 2024. In recent months, the Japanese yen has depreciated significantly against major currencies, especially the US dollar.  Nonetheless, there are signs that Japanese authorities may not allow the country’s currency to slump further. Indeed, after breaching the 160 mark per dollar last week, for the first time in 34 years, two rounds of suspected official intervention have helped it stabilize to around the 155 level.

Japan’s government and central bank should start targeting an exchange rate of 120-130 per dollar, as the yen is currently far too weak for struggling small businesses, according to a national business group leader. Additionally, Ken Kobayashi, Chairman of the Japan Chamber of Commerce and Industry recently reported that the 120 range would be a more appropriate exchange rate level for businesses in order to offer them greater operational flexibility.

Among the many factors affecting the exchange rate, the primary reason for the yen’s recent depreciation is the difference between US and Japanese interest rates. Indeed, the Bank of Japan (BoJ) maintains low interest rates and its commitment to ultra-loose monetary policy, while the US Federal Reserve has raised interest rates to 5.5%. As such, this divergence in monetary policy has made the yen less attractive than currencies in other major economies where investors can realize higher returns due to higher interest rates. While a BOJ rate hike would help narrow the interest rate gap, Kobayashi said it would be difficult for Japan’s central bank to make a sharp move anytime soon considering companies’ financing issues and the potential impact on the economy, although he did not rule out the possibility of the bank considering its next step as early as this summer.

Moreover, while Asian central banks have been active supporting their currencies against the dollar, the fall in the yen has been the worst in the region, eroding the export competitiveness of Japan’s close neighbors.

For other currencies in Europe, the Swiss Franc depreciated by 0.18% by the end of this week to stand at USD/CHF 0.907 on Friday May 10^th, 2024. Elsewhere, the Chinese Yuan and Canadian dollar appreciated respectively by 0.23% and 0.04% to stand at USD/CNY 7.2245 and USD/CAD 1.3681 on Friday May 10^th, 2024. Finally, the Australian dollar depreciated by 0.02% to stand at AUD/USD 0.6609 by Friday May 10^th, 2024.

Commodities

Gold prices increased by 2.83% over the course of the week to reach $2,366.8/ ounce on Friday May 10th, 2024. Gold advanced to the highest level in almost three weeks as it is supported by a strong demand from China. Moreover, the tensions in the Middle East have boosted the metal’s attraction as a haven asset. Therefore, economists are forecasting that gold could climb to near $2,500 an ounce by end of the year.

Crude oil prices increased by 2.33% and reached $79.93 on May 10^th, 2024 as China oil imports rise in April 2024. Furthermore, the geopolitical tensions in the Middle East continue to pose risks on supply chains and increase the outlook for oil demand.

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