Gold Price Exceeds $2,700/Ounce While Both Oil Benchmarks Prices Drop

*Prices are as of the time of writing this report

The Nominal Effective Exchange Rate (NEER) of the Lebanese pound increased marginally this week against a basket of 21 influential currencies, including the US Dollar and Euro, and recorded 230.76 points on October 18^th, 2024. Since the start of the year, we notice that the NEER Index dropped by 4.2%. The decline is attributed to the US Dollar’s sharp decrease this year, which led to a decline in the Lebanese Lira’s valuation against other currencies since the Lebanese Lira’s exchange rate to the US Dollar has been stable since January 2024.

International Forex Market

*Prices are as of the time of writing this report

In international currency markets this week, the US Dollar index, a measure of the US currency’s strength against a basket of six rivals, inched slightly higher by 0.78% to 103.692. This increase is attributed to signs of strength of the US economy supporting Federal Reserve’s cautious approach in interest rate cuts as Atlanta Fed President Raphael Bostic expecting a one 25 bps reduction in interest rates this year compared to the median forecasts of 50 bps. The US economic data were robust this week as retail sales increased by 0.4% in September (exceeding the forecasts of 0.1%). Additionally, 241,000 new Americans filed for unemployment which is below the anticipated 260,000. On Friday, 18^th October, 2024, dollar index reached 11-week high around 103.8 supported by the so-called “Trump Trade”. Increasing odds that Trump will win the upcoming election will put inflationary pressure on the US economy due to his policies on tariffs, taxes, and immigration, thus detaining the Federal Reserve from cutting interest rates.

The euro dropped by 0.89% reaching 1.084. The reason behind the decrease is the interest rates cut by the European Central Bank (ECB) by 25 bps on Thursday October 17^th, 2024. This cut was supported by decrease of annual inflation rate from 2.2% in August 2024 to 1.7% in September 2024 (lower than the forecasted 1.8%).

Similarly, the Swiss franc and British Pound depreciated by 1.09% and 0.08% respectively reaching 0.8663 and 1.3055.

In Asian forex markets, Japanese yen depreciated marginally by 0.54% and recording 149.93 affected by the pressure from a rallying US dollar after strong economic data and increasing odds of trump winning the upcoming elections. Internally, Japan’s September trade balance showed a deficit due to the unexpected decline in exports while imports grew at a slower pace.

Similarly, Chinese Yuan depreciated by 0.56% to record 7.1059 after the release of China’s trade data that came lower than the anticipated as both exports and imports fell below market forecasts. In addition, the CPI eased, reached its lowest figure since June, supporting the need for expansionary policy interventions from Beijing.

Commodities Market

*Prices are as of the time of writing this report

In commodity market, Gold prices rallied this week exceeding the $2,700/ounce level driven by the increasing global demand on the safe-haven asset after the escalation of the war in the Middle East and the assassination of Hamas leader Yehya Al Sinwar. In addition, the ECB cut rates by 25 bps which will be followed by rate cuts from other major Central Banks such as Bank of England as inflation in England is easing.

As for both oil benchmarks, Brent and West Texas Intermediate (WTI) prices dropped 3.86% and 6.41% respectively recording $74.46/barrel and $70.72/barrel. This decrease is driven by the escalating geopolitical tensions in the Middle East in addition to the expectations of decrease in global demand. The latest reports regarding Israel’s expected airstrike might not target oil sites, thus easing fears of supply disruptions despite the increase in the military tension between Lebanon and Israel as the latter target civilian areas in Beirut. Regarding the demand side, both OPEC and International Energy Agency are expecting production cuts in the remaining of 2024 due to the lower demand from China as its consumption of oil decreased in August 2024 dropped by 500,000 barrels per day for the fourth consecutive month.

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