Euro and British Pound Gains Against US Dollar Following French and British Elections Results

Lebanese Forex Market

Lebanese monetary 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 used for calculating commercial banks’ and BDL’s balance sheets, though no decision have been reached on the “banking exchange rate” yet.

The Lebanese exchange rate has maintained a relatively stable exchange rate of approximately 89,700 USD/LBP in the parallel market by July 5^th, 2024. It is crucial to recognize that this stability is not backed by robust fundamentals, but by the cautious and tight monetary policies by BDL, and as BDL deactivated circular 161 related to Sayrafa since August 2023 when the acting governor Mr. Wassim Mansouri took the reign of BDL.

As for the Euro/LBP currency pair, the Euro appreciated against the LBP with the currency pair going from last week €/LBP 95,881.35 to €/LBP 96,856.90 by July 5^th, 2024. The Nominal Effective Exchange Rate (NEER) of the Lebanese pound slightly declined by 0.29% standing at 227.6 points on July 5^th, 2024.

International Forex Market

The USD Index (DXY) slightly remained almost constant at around 104.96 on July 5^th, 2024.

The Euro slightly appreciated against the dollar by 1.02% over the course of the week and reached EUR/USD 1.082 by July 5^th, 2024, after the release of European Central Bank (ECB) minutes of meeting. ECB signaled potential rate cuts this year without mentioning more details, while investors anticipated one or two more cuts this year. Despite that, ECB president Lagarde stated at the ECB forum that the central bank does not have yet enough evidence that inflation threats have elapsed although flash estimates revealed annual inflation rate in Euro zone in June eased to 2.5% along with the expectations. Politically, Le Pen’s National Rally achieved victory in French first round parliamentary election with shares less than the anticipated and far from securing a majority awaiting the second round this weekend. Thus, investors felt some relief that centrists might not lose power.

Similarly, the British Pound slightly appreciated against the dollar by 1.07% over the course of the week and reached GBP/USD 1.2777 by July 5^th, 2024 as the center-left Labor party which prioritizes economic stability secured a majority in the British elections ending Prime Minister Sunak’s Conservative party 14-year rule. Investors forecast that such political shift might strength the British pound and restores Britain’s reputation as a safe-haven for investments, amid political uncertainty in other regions. On the monetary policy front, analysts are expecting interest rate cuts in August.

For other currencies in Europe, the Swiss Franc appreciated by 0.11% by the end of this week to stand at USD/CHF 0.8977 on Friday July 5^th, 2024.

Elsewhere, the Japanese Yen slightly appreciated by 0.06% to reach USD/JPY 160.74 as benefitting from a decline in US dollar after the release of some US economic data driving the Federal Reserve for rate cut in September with a 73% probability. Moreover, there is a rising speculation that Bank of Japan (BoJ) could rise interest rates at its upcoming policy meeting in late July.

As for the Chinese Yuan, it remained almost constant at around USD/CNY 7.267 by July 5^th, 2024.

Furthermore, the Australian and Canadian dollar appreciated over the course of the week by 0.94% and 0.49% respectively to stand at AUD/USD 0.673 and USD/CAD 1.361 on Friday July 5^th, 2024.

Commodities

Gold prices rose by 1.79% over the course of the week to reach $2,367.25 / ounce on Friday July 5^th, 2024, on track for its second weekly gain. Investors are awaiting key US monthly jobs report that could affect Federal Reserve’s interest rates decision. Earlier this week, June data revealed the severest contraction of services activity in four years with signs of reducing inflation, in addition to disappointing private employment figures in the US. Moreover, the escalating geopolitical tensions in the Middle East are driving investors to gold as a safe-heaven.

Crude oil prices increased over the course of the week by 3.14% and reached $84.1/ barrel following US Energy Information Administration (EIA) report showing drop in US crude stockpiles by 12.2 million barrels last week, above the expectations of 680,000 barrels. Additionally, weak US economic data increased expectations for September interest rate cut, supporting confidence in economic growth and energy consumption. In addition, escalating geopolitical tensions in the Middle East raised fears about oil supply.

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