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The rematch of the Euro does not stop, the reasons why the Lek is being devalued

2023-01-06 17:07:08Biznes SHKRUAR NGA REDAKSIA VOX
The rematch of the Euro does not stop, the reasons why the Lek is being devalued
The rematch of the Euro does not stop

The Euro continued its rapid strengthening in the exchange rate with the Lek on Friday as well.

According to the official exchange rate of the Bank of Albania, the European currency closed the week at the level of 117.49 lek, increasing by almost 1.4 points compared to Thursday and by approximately 4.3 points compared to December 28, when the Euro touched its historical minimum of 112.83 lek. . For one week, the Euro has regained all the ground lost in the last two months and touched the highest level since the beginning of November.

According to sources from the market, the rapid recovery of the Euro is due to a sudden increase in demand from the market in the last days of December, especially from businesses. Market agents hypothesize that a significant impact may have been given by the usual, concentrated increase in public spending during the month of December.

This has led to a strong increase in the supply of Lek in the foreign exchange market. Under these conditions, many businesses may have taken advantage of the free liquidity created to purchase Euro reserves in advance, seeing the historically low exchange rate of the European currency.

On the other hand, market experts do not rule out that the fall of the Euro is also related to large purchases by certain corporations. In general, strong movements in one direction in the Albanian foreign exchange market occur when there is a large demand, concentrated in a short period of time. Given the small size of the market, such demand induces a strong shock in the foreign exchange rate.

If the strong demand for the Euro in recent days has come as a result of advance purchases by businesses, experts believe that this will affect a lower demand for the European currency until the end of the first quarter. In this case, the chances are that the Euro will again suffer a gradual decline for the following period.

However, forecasts for the foreign exchange rate remain subject to high uncertainty, even considering the development of local elections in May.

Election years are accompanied by an increase in public spending in the months leading up to the elections, which means more lek supply in the market. But, on the other hand, history has shown that in pre-election periods there is an increase in foreign exchange flows from informal sources. This translates mainly into an increase in the supply of Euros.

In the first days of this year, the lek is losing ground at a fast rate against other major currencies, starting with the US dollar and the British pound. However, this reflects the strengthening of these currencies against the Euro in international markets and is not related to developments in the domestic foreign exchange market. /Monitor


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