The Egyptian pound has experienced a significant rally of 12% on the local black market in the past week, fueled by a decrease in demand for US dollars. According to several traders, the pound was trading at approximately 37 per dollar on Thursday, compared to 42 per dollar just last Friday.
These traders, who preferred to remain anonymous, believe that the currency may continue to strengthen in the coming days.
The sudden weakening of demand for the greenback has led traders to reduce their activity. On official channels via banks, the pound is trading at 30.9 per dollar. The Russian invasion of Ukraine had a severe impact on the Egyptian economy, resulting in soaring food and fuel prices and exacerbating the country’s foreign exchange shortage, which is the worst in years.
To address the crisis, the Egyptian authorities have devalued the pound three times since the first quarter of 2022, ultimately securing a $3 billion deal with the International Monetary Fund (IMF).
Over the past year, the pound has already depreciated by approximately 50%, and further depreciation is anticipated as the government struggles to attract hard currency from foreign investors in the Gulf region and beyond.
The main question is when this devaluation will occur, as Citigroup Inc. and BNP Paribas recently suggested that it may be further into the future than previously anticipated.
One contributing factor to the decreased demand for dollars is the call by the nation’s car dealers’ association for its members to cease purchasing from the parallel market.
In the non-deliverable forwards market, the pound’s one-month contract has experienced a 2.4% gain, reaching around 31.8 on Thursday, marking its strongest level since March 2.
Investors are beginning to question Egypt’s commitment to a flexible currency regime due to the pound’s stability since March. A senior IMF official recently stated that the government is serious about implementing a flexible exchange rate.
The IMF is awaiting further implementation of the comprehensive reforms promised by Egypt, which include genuine exchange rate flexibility and privatization of state assets, before conducting the first review of the country’s program.
