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Lebanon: Govt Seen Backtracking from FX Move

Lebanese pound banknotes are pictured at a currency exchange shop in Beirut, Lebanon, January 5, 2022. REUTERS/Mohamed Azakir
Lebanese pound banknotes are pictured at a currency exchange shop in Beirut, Lebanon, January 5, 2022. REUTERS/Mohamed Azakir
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Lebanon: Govt Seen Backtracking from FX Move

Lebanese pound banknotes are pictured at a currency exchange shop in Beirut, Lebanon, January 5, 2022. REUTERS/Mohamed Azakir
Lebanese pound banknotes are pictured at a currency exchange shop in Beirut, Lebanon, January 5, 2022. REUTERS/Mohamed Azakir

The Lebanese finance ministry seemed on Thursday backing away from a Nov. 1 start date to slash the official exchange rate.

The ministry said on Wednesday the official exchange rate of 1,507 pounds per dollar would be replaced with one of 15,000, calling this a step towards unifying multiple rates that have emerged during Lebanon's three-year long financial crisis.

But after declaring a Nov. 1 implementation date, the ministry later linked the step to approval of a financial recovery plan, the latest version of which is being discussed in parliament.

Some economists and politicians saw this as a government retreat: the recovery plan, which must address a $72 billion hole in the national finances, has been in dispute since 2019.

The pound's market value currently stands at 38,000 to the dollar, a devaluation of more than 95% since Lebanon collapsed into a financial crisis that has plunged swathes of the population into poverty.

Finance Minister Youssef Khalil could not be reached for comment. In a Reuters interview on Wednesday, he said the change was agreed with the central bank and would be discussed with stakeholders over the next month before implementation.

Ibrahim Kanaan, a senior lawmaker in President Michel Aoun's Free Patriotic Movement, told Reuters amending the official rate was necessary "but not in this way".

"I want to check if he will follow through on this or has to amend it a bit, because you cant do it this way," he said.

A finance ministry official referred Reuters to a statement late on Wednesday that said the move to a new official exchange rate was "conditioned on the approval of the recovery plan that is being worked on, and which should accompany that step".

Central bank governor Riad Salameh, in a text message to Reuters late on Wednesday, said implementing the decision "will require time", without elaborating.

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Oil Falls as Market Eyes US-China Trade Talks, Storage Report Mixed

The Phillips 66 Carson refinery is shown after the company said it will shut its large Los Angeles-area oil refinery late next year, delivering a blow to California's fuel supply, in Carson, California, US, October 17, 2024. (Reuters)
The Phillips 66 Carson refinery is shown after the company said it will shut its large Los Angeles-area oil refinery late next year, delivering a blow to California's fuel supply, in Carson, California, US, October 17, 2024. (Reuters)
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Oil Falls as Market Eyes US-China Trade Talks, Storage Report Mixed

The Phillips 66 Carson refinery is shown after the company said it will shut its large Los Angeles-area oil refinery late next year, delivering a blow to California's fuel supply, in Carson, California, US, October 17, 2024. (Reuters)
The Phillips 66 Carson refinery is shown after the company said it will shut its large Los Angeles-area oil refinery late next year, delivering a blow to California's fuel supply, in Carson, California, US, October 17, 2024. (Reuters)

Oil prices edged lower on Wednesday, after bouncing back from a sharp sell-off earlier in the week, as investors turned their focus to US-China trade talks this weekend.

Brent crude futures were down 71 cents a barrel, or around 1.14%, at $61.44 a barrel by 12:00 p.m. ET (1600 GMT), while US West Texas Intermediate crude was down 66 cents, or 1.12%, lower at $58.43 a barrel.

The US and China are due to meet in Switzerland, which could be the first step toward resolving a trade war disrupting the global economy.

The US-China trade talks come after weeks of escalating tensions that have seen duties on goods imports between the world's two largest economies soar well beyond 100%.

"While the meeting may signal a thaw, expectations for a breakthrough remain low," said Thiago Duarte, market analyst at Axi. "Unless the US receives major trade concessions, further de-escalation seems unlikely," he said.

Investors also awaited the upcoming Fed update on Wednesday. They expect the policy rate to remain in the 4.25%-4.50% range until the Fed's July 29-30 meeting.

Meanwhile, US crude inventories fell by 2 million barrels to 438.4 million barrels last week, the Energy Information Administration (EIA) said on Wednesday, compared with analysts' expectations in a Reuters poll for a 833,000-barrel draw.

However, gasoline inventories rose, raising concerns among analysts of weak demand ahead of a major driving holiday in the US later this month.

"This is the first bad report for gasoline in a couple of weeks. The refiner had been cranking up the utilization rate. But today in this report it went backwards," said Bob Yawger, director of energy futures at Mizuho.

Limiting the losses, some US producers have signaled that they would cut spending, cautioning that the country's oil output may have peaked.

Additionally, conflict in the Middle East between Israel and the Houthis increases the geopolitical risk premium, said Tamas Varga, an analyst at PVM.