The growth of the Euro as a "straw flame"/ The exchange rate falls again near the lowest annual levels

2024-03-29 14:44:00, Ekonomi CNA

The growth of the Euro as a "straw flame"/ The exchange rate falls

The increase in the Euro-Lek exchange rate that occurred on Wednesday has completely deflated and the rate has returned to near the lowest levels of 2024. According to the exchange rate of the Bank of Albania, the Euro was exchanged on Friday at 102.87 Lek, down strong for the second day in a row.

On Wednesday, the Euro recorded the strongest growth since the summer of last year and jumped to the level of 104.63 ALL. However, as had been warned, this increase was not sustainable and in a few days the rate returned to previous levels.

The fall of the Euro has been reflected, as usually happens, in the exchange rate of other currencies.

The American dollar has dropped to the level of 95.37 lek, from 96.52 lek that was on Wednesday. The British pound has dropped to 120.34 ALL, from the level of 121.94 ALL on Wednesday.

According to sources from the banking sector, Wednesday's increase was paradoxical, given that there was no broad base of demand for the Euro in the market. Apparently, the increase has come from specific banks that, due to the needs of their positions or at the request of specific clients, have shown a very large demand for currency, pulling the exchange rate up.

This event proves once again that the Albanian foreign exchange market is easily affected by panic, perhaps due to its shallowness and small size. However, even this moment has been quickly overcome and the course has returned near the levels of the previous week.

Key exchange rate factors seem to dictate new downward pressures on the Euro-Lek exchange rate. The entry into the spring season is expected to further increase foreign tourist arrivals and foreign currency inflows into the economy. This has created premises for a new cycle of strengthening of the Lek.

Currently, the Euro-Lek exchange rate is down by 9.5% compared to the same day a year ago. The annual downward trend of the exchange rate accelerated during the second half of March.

Bank of Albania data showed that last year the current account deficit fell to a historic low of 191 million euros, down 78% compared to 2022. The current account deficit is estimated at less than 1% of the Gross Domestic Product , from about 6% that had been a year ago.

Meanwhile, the record value of foreign direct investments, of almost 1.5 billion euros, has exceeded the current account deficit several times, which shows that more foreign currency has entered the economy than it has left.

Expectations are that the balance of payments will continue to improve this year as well, albeit at a slower pace compared to 2023. This is expected to create new downward pressures on the Euro-Lek exchange rate. /Monitor