The Nominal Effective Exchange Rate (NEER) of the Lebanese pound increased marginally by 0.3% this week against a basket of 21 influential currencies, including the US Dollar and Euro, and recorded 232 points on November 15th, 2024. This increase is supported by the strengthening dollar, as the Lebanese Lira is pegged to the dollar, following Donald Trump’s recent US presidential election victory, which continues to shape market sentiment.
This increase occurs despite the ongoing Hezbollah-Israeli conflict, as Banque du Liban (BDL)’s data shows a notable $436 million drop in October in foreign exchange reserves, which helped stabilize the Lebanese Lira against the dollar. This drop primarily resulted from BDL’s expansion to the range of beneficiaries from its circulars 166 and 147, and from its increase to the number of monthly payments. According to reliable sources to “This is Beirut“, BDL also plans to continue providing two monthly payments instead of one under circulars 158 and 161, which allow exceptional withdrawals in fresh dollars, aiming to support liquidity amid these challenging conditions. These payments will be funded by BDL, further depleting its foreign exchange reserves.
In international currency markets this week, the US Dollar index, a measure of the US currency’s strength against a basket of six rivals, jumped by 1.6% to 106.7 points, amid expectations that the Federal Reserve will slow down cutting rates.
On Thursday, Fed Chair Jerome Powell mentioned that the Fed isn’t in a hurry to cut rates because the economy and job markets are strong, and inflation is sticky. As a result, traders are now pricing in a 62.6% chance of a quarter-point rate cut at the Federal Reserve’s December meeting, down from 82.5% before the meeting, according to the CME Group’s FedWatch tool. Trump’s recent presidential victory is also expected to drive inflation up, due to his support to policies such as higher trade tariffs and tax cuts, further limiting the Fed’s ability to cut rates.
As the dollar strengthens, other currencies tend to weaken against it.
The euro fell by 1.5% this week against the dollar, reaching 1.06 points, its lowest since October 2023. This drop is due to potential faster interest rate cuts and fears that Trump’s trade policies will harm the EU’s exports, especially cars. Weak EU economic data has increased expectations that the European Central Bank (ECB) will cut rates more aggressively than previously expected. With the ECB and Fed adopting opposite monetary policies, the euro is likely to weaken further.
Similarly, the British pound sinked by 1.9% this week to 1.27 points following a 0.1% economic growth in the third quarter, below forecasts, as the economy contracted in September.
In Asia, Trump’s threat to impose tariffs on foreign goods is likely to weaken the region’s currencies, although the extent of this impact will vary based on each country’s trade exposure. This situation could decrease investments in these countries. The Chinese Yuan weakened to 7.23 per dollar from 7.18 last week, while the Japanese Yen dropped to 156.14 per dollar from 152.63 last week. The exact details of these tariffs are still unclear, but Trump mentioned they could reach 60% on Chinese imports, which could drive investments away from China toward less affected countries.
In commodities markets, Gold prices fell this week by 4.6% to $2,560/ounce, to record their biggest weekly drop in over 3 years. The stronger dollar makes gold more expensive for investors using other currencies. Additionally, reduced expectations for Fed rate cuts make gold less attractive since it does not provide any yield.
In oil markets, both Brent and West Texas Intermediate prices fell by 3% and 3.65%, settling at $71.60 and $67.80 per barrel, respectively. This drop is due to concerns about oversupply and the stronger dollar. The International Energy Agency (IEA) predicts an oil surplus next year, despite OPEC+ plans to cut production. This is mainly because of weak demand in countries like China and India, along with increased production from the U.S. and other producers. The rising dollar also makes oil less appealing for investors holding other currencies.
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