Dollar Ends its Downward Rally and China’s Yuan records its strongest Level in 2024

Lebanese Forex Market

The Nominal Effective Exchange Rate (NEER) of the Lebanese pound stood steady this week against a basket of 21 influential currencies, including the US Dollar and Euro, and recorded 229.98 points on August 30^th, 2024. Since the start of the year, we notice that the NEER Index fell by 4.53%. The decline is attributed to the US Dollar’s decrease to its lowest level this year earlier this week, which led to a decrease in the Lebanese Lira’s valuation against other currencies since the Lebanese Lira’s conversion rate to the US Dollar has been stable since January 2024.

International Forex Market

In international currency markets, the US Dollar index, a measure of the US currency’s strength against a basket of six rivals, recorded a new 2024 low again last Tuesday. Then, it rebounded today (Friday) to trade near its highest level this week. The increase was supported by the US economy’s growth by 3% annually in Q2 2024, an upward revision from the 2.8% rate reported last month, and a positive surprise to markets as economists polled by Reuters had not forecasted a change in the revision. Meanwhile, investors await personal consumption expenditures (PCE) data, the Fed’s preferred measure of inflation, later today. The Reuters poll shows economists expect the PCE to increase by 2.7% annually in July, compared to 2.6% in June. A stronger-than-expected read could further push the dollar upwards.

In Europe, both the euro and the Sterling ended their rally against the dollar this week as the robust US GDP data decreased bets for an aggressive Fed rate cut in its next meeting. This would soften the pace of Fed’s interest rate cut. Similarly, the Eurozone inflation fell to 2.2% YOY in August, lowest level in 3 years, from 2.6% in July, supporting expectations that the ECB will cut interest rates next month, therefore, decreases the Euro’s valuation against the US Dollar.

The Japanese yen recorded some gains as strong inflation data from Tokyo led investors to believe that the Bank of Japan will follow a hawkish monetary policy.

The Chinese currency recorded its strongest level in 2024. The currency benefited from expectations the Fed will soon cut interest rates, which has led traders to sell the dollar and buy Yuan.

In commodity markets, Gold price increased this week by 0.32% to $2,520.03 per ounce amid expectations that the Federal Reserve will cut interest in the next meeting, and from the continuing ongoing tensions in the Middle East as gold is seen as a safe investment during geopolitical uncertainties.

As for energy markets, Brent crude, the global oil benchmark steadied last week and stood at $79.02 a barrel and West Texas Intermediate, the US equivalent, rose 1.68% during the same period to $76.09 a barrel. From one side, oil prices benefited from Libya’s oil output drop to about 450,000 from 1 million barrels a day before Monday. This resulted from the western Libya’s decision to replace central bank Governor Sadiq Al-Kabir that led to a shutdown of all oil production. At the same time, Iraqi supplies are also expected to decline after the country’s production exceeded its quota agreed with OPEC+. From another side, the Energy Information Administration (EIA) reported that Crude inventories declined by 846,000 barrels to 425.2 million barrels in the week ended August 23, way less than the 2.3 million-barrel decrease analysts expected in a Reuters poll. This report eased the increase in oil prices.

OPEC+, is set to increase its oil production from October 2024 to September 2025. While Libya’s oil production shutdown will ease this decision, but given this incident is very recent and it its duration is highly uncertain, the OPEC+ decision on supply increases becomes harder.

Earlier this week, Goldman Sachs Group Inc. and Morgan Stanley lowered their 2025 oil price forecasts by $5 to $77 and $80 respectively as they expect China’s recovery to lose its steam.

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