Demand for Lebanese Pound Strengthened Over the Past Week

Demand for the dollar in the Lebanese Forex market strengthened during the week as the Lebanese pound’s peg against the dollar went from $/LP 1,504–1,508 with a mid-price of $/LP 1,506 to $/LP 1,505–1,509 with a mid-price of $/LP 1,507. Foreign assets (excluding gold) at the Central Bank increased by a monthly 2.28%, from $37.73B by end-April to $38.59B by end-May. Meanwhile, the dollarization rate of private sector deposits stood at 65.30% in April 2015 compared to 65.71% in December 2014.

Both the Dollar and the Euro were under pressure during the week, but the Euro lost more ground with a 0.86% slip against the dollar to end the week at €/$ 1.1109 mainly on the back of Athens defaulting on its $1.7B payment to the IMF on Tuesday. Notably, all Greek banks were closed during the week to restrict capital movement. Despite this, the Euro economy is showing positive signs from the quantitative policy, as the Purchasing Managers Index (PMI) of the region went up from 53.6 in May to 54.2 in June. On the US front, downward pressure on the dollar came from the latest economic data, where annual growth fell from 2.3% in May to 2.0% in June.

Demand for gold registered its fourth consecutive weekly decline. The price of gold declined from last week’s quote of $1,173.23/ounce to $1,168.33/ounce on Friday. Despite hesitancy regarding Greece’s negotiations with its creditors and the negative US economic data in June, this haven asset is showing slow signs of recovery.

By Friday 2nd of June, 2015, 12:30 pm Beirut time, the dollar-pegged LP appreciated against the euro going from €/LP 1,689.15 to €/LP 1,674.68. The Nominal effective exchange Rate (NEER) gained a weekly 0.37% to 164.73 points, bringing its year-to-date gains to 11.82%. 

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