Egyptian pound against US dollar: high performance hinges on soft ground – economy – business


Although the US dollar has lost about 18% of its value against the Egyptian pound since 2017, experts estimate the gains claimed by the Egyptian pound are unsustainable and are expected to fade by the end of 2021.

Despite the better performance of the Egyptian pound against the US dollar in recent years, even in the midst of the current COVID-19 crisis, the declining curve of the US traded price in the Egyptian market and the reasons for it ‘such a decline implies non-resilience. such performance at least in the short term.

In February, the Egyptian cabinet’s media center released a report showing that the Egyptian pound had achieved a robust performance against the US dollar in 2020 despite the COVID-19 crisis, ranking it among the best monetary performance in emerging markets.

In 2020, the US dollar was trading at 15.8 EGP on average, reached its high of 15.2 EGP on June 4 and low of 15.4 EGP on March 8..

In the midst of the first wave of the pandemic, the cabinet said the Egyptian pound has managed to maintain a good performance to remain the most resilient among emerging market currencies against the US dollar over the past three years, and the less affected by the implications of COVID. -19 pandemic.

Following the US price in the domestic market since 2017, the US dollar traded at 17.8 EGP on average, recorded its high of 19 EGP on January 23, 2017, and low of 15.7 EGP on February 21. 2017, according to data from the EPC.

A year later, the list price in the United States averaged 17.8 EGP, reached its high of 17.9 EGP on December 26 and the low of 17.5 EGP on March 17, also according to the EPC data.

US prices continued to decline in 2019 to trade at 16.8 EGP on average, posting their high of 17.9 EGP on January 13 and low of 16 EGP on December 29.

In 2021, from January to March, the price of the US dollar sailed below 16 EGP to trade between 15.5 EGP and 15.8 EGP.

The US dollar – so far – has lost around 3.5 EGP of its price against the Egyptian pound (around 18% of its value) since 2017.

A number of agents contributed to the achievement of such performance, notably the Extended Financing Facility (EFF) program of the International Monetary Fund (IMF) which enabled Egypt to obtain a loan of $ 12 billion to implement the country’s economic reform program.

Such a sum increased Egypt’s net international reserves (NIR) until the end of the lending program in July 2019.

The loan amount, along with other loans and facilities obtained by Egypt from international institutions, succeeded in gradually replenishing the NIR of the CBE to reach its highest level of 45.5 billion dollars in February, against approximately $ 16.4 billion.

NIRs reached such a peak before they were hit hard by the pandemic, which put great pressure on Egypt’s public budget and prompted the government to pump out more foreign currency liquidity to protect the economy amid the crisis. crisis.

Pound, dollar

A CBE official also announced in November 2020 that the total inflow of foreign currency into the Egyptian banking system had exceeded $ 400 billion since the liberalization of the exchange rate in November 2016 following the implementation of the EFF program.

In 2020, Minister of International Cooperation Rania Al-Mashat announced that Egypt had secured $ 9.8 billion as development facilities that are used for the implementation of the Sustainable Development Goals (SDGs).

In addition, Egypt raised billions of dollars in 2020 by increasing investments in debt instruments, which helped to increase the liquidity of the dollar in the market, which caused the price of the US dollar to fall due to of the abundance of the US dollar.

In October, Egypt attracted 16 new investors from Europe, the United States, East Asia and the Middle East in terms of asset managers, investment funds and insurance, high-quality pension funds and banks holding their longer-term investments to invest in its first of kind – in the Middle East – green bonds with a total value of $ 750 million.

In November 2020, CBE said it had sold $ 1.5 billion in one-year T-bills.

In 2020, Egypt filed two requests with the IMF seeking two Rabies Finance Facility (RFI) and Standby Arrangement (SBA) loans totaling around $ 8 billion. dollars.

As a result, the Egyptian pound has benefited from foreign currency inflows directed to Egypt, either due to increased investment in government debt instruments or by guaranteeing loans to support the economy amid the pandemic.

Pound, dollar

Amr El-Alfy, head of research at Prime Securities, said that the positive acceptance of the Egyptian government debt instruments; the increase in the CBE’s NIR and the interest in the US dollar in the world market, which reached zero, all supported the good performance of the Egyptian pound against the US dollar, particularly in the three years, including during the pandemic.

Still, El-Alfy expects such a performance to be unsustainable as it is only expected to last for the short term, until the end of 2021, with lower interest rates on the US dollar and difficult interest rates in peers in emerging markets across the MENA region.

COVID-19 has hit Egypt’s external finances, causing an outflow of $ 18 billion (five percent of GDP) from the local currency debt market, a loss in tourism revenue (which recorded $ 13 billion in 2019) and likely a drop in remittances (which were nearly $ 27 billion in 2019), Fitch Ratings said in March.

Fitch, who confirmed Egypt’s credit rating at B + with a stable outlook in March, noted that the worst of portfolio exits appear to be over, with new entries reported in July.

He also said that currency volatility has been minimal so far in 2020 thanks to support from the CBE and public sector banks making foreign currency available at the prevailing exchange rate, adding that the real and effective appreciation recent years has undermined much of the competitiveness gain from the 2016 devaluation.

Over the medium term, the report expects that the persistence of an unresilient exchange rate will put additional pressure on Egypt’s current account deficit and erode the sustainability of its external finances.

On the other hand, banking expert Hani Abo El-Fotouh said the performance of the Egyptian pound against the US dollar gives cause for optimism given its slowing trajectory since June 2020, when the United States s ‘were trading at EGP 15.7, the highest level they posted. since October 2016.

Abo El-Fotouh, however, expected the price of the US dollar in the Egyptian market to rise by up to five percent due to current challenges at the national and global levels.

Trading Economics expects the US dollar to trade at 15.7 EGP by the end of the previous quarter (ended March), expecting it to trade at 15.8 EGP in 12 months.

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