Dollar Demand Declined in the Lebanese Forex Market During the Week

Demand for the dollar weakened on the Lebanese Forex market during the week. This was partially due to the increase in capital inflow to the banking sector, which led to an increase in the money supply by 0.89% (largest weekly increase in 3 and ½ years), in the last week of April. This was shown by the Lebanese pound’s peg against the dollar, which dropped from $/LP 1,510-1,514 with a mid-price of $/LP 1,512 on April 15, to $/LP 1,509-1,513 with a mid-price of $/LP 1,511. Foreign assets (excluding gold) at the Central Bank decreased by a monthly 1.94%, from $38.48B by end-March to $37.73B by end-April. Meanwhile, the dollarization rate of private sector deposits stood at 65.25% in March 2015 compared to 65.71% in December 2014.

The Euro depreciated by 1.67% against the dollar to €/$1.1170, after 5 consecutive weeks of appreciation. This might be attributed to the ECB renewing and actually expanding its emphasis on stimulus by purchasing more sovereign bonds. In addition, cash-needy Greece is on the brink of default considering that Angela Merkel gave the country up until the end of this month to reach a deal. On the US front, the dollar demand was aided by the better economic data in terms of housing sales (best since November 2007) and low unemployment rate of 5.4%, for the month of April.  Moreover, the Federal Reserve decided to not hike interest rates in June on Wednesday, which gave a more stable outlook for investors.

Demand for gold was sluggish during the week on the back of the mentioned appreciating dollar and the bearish trend in international oil prices, where Brent crude oil experienced a 0.66% weekly decrease to 65.39 $/barrel. In turn, since previous worries of inflationary pressures alleviated, gold went down to $1,212.13/ounce from $1,216.17/ounce on the 15th of May 2015.

By Friday May 22th, 2015, 12:30 pm Beirut time, the dollar-pegged LP appreciated against the euro going from €/LP 1,712.52on the 15th of May to €/LP 1,683.88. The Nominal effective exchange Rate (NEER) augmented by 0.36% to 163.37 points, broadening its year-to-date gains to 10.89%.

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