Dollar Demand Declined in the Lebanese Forex Market Two Weeks Running

Demand for the dollar continued to weaken for the second consecutive week in the Lebanese Forex market. This was partially due to the excess supply of foreign currency inflow to the banking sector, illustrated by the increase in broad money dollarization from 58.27% to 58.33%, during the first 2-weeks of May. Consequently, the Lebanese pound’s peg against the dollar dropped from 1,509-1,513 with a mid-price of $/LP 1,511 on May 22, to $/LP 1,505-1,509 with a mid-price of $/LP 1,507. 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 1.88% against the dollar to €/$1.0960, for the second week running. This could be on the back of Greece probably not reaching an agreement with the ECB, as Angela Merkel gave the country until May 31st to arrive to a settlement. In terms of the “green back”, the dollar demand improved due to better economic data in April, allowing Janet Yellen to state that the Fed will hike interest rates this year.

Demand for gold fell significantly during the week, with the impressive bullish drift of the dollar, coupled with the bearish trend in Brent oil price, which downturned by about 6% over the same period. In turn, gold went down to $1,189.85/ounce from $1,212.13/ounce on the 22nd of May 2015.

By Friday May 22nd, 2015, 12:30 pm Beirut time, the dollar-pegged LP appreciated against the euro going from €/LP 1,683.88 on the 22nd of May to €/LP 1,652.22. The Nominal effective exchange Rate (NEER) augmented by 0.65% to 164.44 points, broadening its year-to-date gains to 11.62%.

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