stock photo - Egypt Today
CAIRO – 22 February 2017: The Egyptian pound’s appreciation over the last week may cause foreign investors to back off, according to a Monday
by Bloomberg. The report also suggested that the pound would not continue to stabilize, but rather that the value of the U.S. dollar would again become stronger than the pound.
“The honeymoon period for Egypt’s pound may be nearing an end," the report said. “Nearly four months after a free float opened the floodgates for overseas funds and made the currency the world’s best performer this year.”
Foreign investors, who have been propping up Egypt’s local treasury bills at auctions, have been almost entirely absent from the last two sales of bills, primarily because a stronger Egyptian pound is less interesting for investment.
Egypt raised U.S. $4 billion in first public bond offerings last month which caused a surge of reserve funds and cash, according to economics expert and analyst Ahmed Saad.
Speaking to Egypt Today, Saad agreed with Bloomberg’s predictions. He said the current situation “is the result of the drastic devaluation of the pound’s rates, following the [flotation]… however, the recovery process has also gone too far.”
Economist Mohamed El-Erian, however, saw the pound’s appreciation as a normal rebound from the extreme depreciation after the float. “Do such predictions take into account what, by most measures, was a large initial overshoot back in November?” he asked in a
“Rather than point to the high probability of renewed currency depreciation, what may well be taking place is a process of price discovery in which the pound is iterating closer to its ‘equilibrium level,’” added Erian, a columnist at Bloomberg and former development advisor to President Obama.
Saad also predicted the pound would stabilize gradually. “We all expect the dollar’s price to rest at 16 or 17 EGP, according to the government’s reform plan,” he said.
The official dollar rate has been declining since the start of the month and has neared 15 EGP, a 14 percent appreciation from where it stood at 18 EGP at the end of January.