Take a dive! There is no demand and there is a lot of inflow, the euro and the dollar touch the lowest level for this year

The exchange rate of the euro against the lek fell further today and touched the lowest level for 2023. According to the official exchange rate of the Bank of Albania, the euro was exchanged at 113.61 lek, further down by 0.37 lek compared to the day yesterday.

Today's exchange rate is the lowest recorded since December 29 last year, while the euro seems to be approaching the historic minimum value of 112.83 lek, which was recorded the day before, on December 28, 2022.

Even the tight domestic monetary and fiscal policies are estimated to have played a role in favor of the appreciation of the lek during 2022 and in the first part of 2023.

As we enter the second quarter of the year, inbound tourism is expected to increase gradually and foreign exchange inflows from it as well. Agents believe that, in the absence of unexpected developments, the short-term outlook for the exchange rate remains in favor of a further appreciation of the lek.

The US dollar is also showing a similar downward trend. According to the Bank of Albania, the dollar traded today on average at 104.7 ALL, also marking the lowest level of 2023.

The exchange rate between the dollar and the lek is actually not closely related to the developments of the domestic foreign exchange market, but mainly reflects the exchange rate between the euro and the dollar in international markets. Since the euro remains the reference foreign currency in the Albanian economy, its rate against other currencies also determines the rate of the latter against the lek.

In recent months, the euro has gained ground and is currently trading at US$1.09, gaining ground significantly compared to last year, when it temporarily dipped below parity.

The strengthening of the euro has been supported by the course of rapid monetary tightening adopted by the European Central Bank this year. Meanwhile, during the month of March, the bankruptcy of some commercial banks in the USA has negatively affected the American financial markets and brought further devaluation of the dollar.

The tendency of the strengthening of the lek against the currencies of the main trading partners has a positive effect in terms of efforts to reduce the inflation level. Being an economy dependent on the import of goods, the strengthening of the lek has partially amortized the effect of the increase in prices in international markets.

On the other hand, the significant strengthening of the local currency is a major concern for sectors that export goods and services, because it reduces their margins and competitiveness. Source: Monitor