After record highs, what is fate of Egyptian pound against USD

By Dina yehia

Despite the major gains recorded by the US dollar against the Egyptian pound during the past few months, which culminated on Wednesday, there has been talk once again about the fair value of the dollar against the pound.
Before the crisis began, specifically in March of last year, the dollar was trading against the Egyptian pound at the level of 15.77 pounds.

Over the past 10 months, the exchange rate of the dollar against the Egyptian pound jumped by about 100 percent to stand at 29.6 pounds at the present time, compared to 10 months ago.
Despite these record highs recorded by the exchange rate of the dollar in the official market, banks and investment companies have returned to talking about the fair value or the fair price of the dollar against the Egyptian pound.
EXPECTATIONS OF EXPERTS SPECIALIZED IN THE FIELD OF BANKING AND ECONOMICS
Analysts link the return of the discussions about the fair price, and the statements revealed from the International Monetary Fund regarding the necessity to adopt a flexible exchange rate with full floating of the Egyptian pound against the dollar, in addition to the continuing crisis of scarcity of goods stacked in Egyptian ports.
“The market is still witnessing a state of volatility and instability so far, despite the presence of dollar inflows during the coming period, the first of which is related to the first tranche of the International Monetary Fund, and it is likely that the total financing will reach $2 billion,” Economist Hani Genena said.
Genena explained that the dollar exchange rate at the present time is a real flexible exchange rate and is subject to the mechanisms of supply and demand, and what happened in the past was nothing but an adjustment to the exchange rate to approach the fair value of the exchange rate of the US dollar against the pound.
Genena also expected that the exchange rate of the dollar would continue to rise in the coming weeks, to settle between 28 and 30 pounds, but with the start of the arrival of dollar inflows, the exchange rate of the dollar against the Egyptian pound would decline.
Hundreds of millions of dollars have flowed through Egypt’s interbank market since the central bank allowed the Egyptian pound to depreciate by 13 percent to a historic low, bankers said on Thursday, according to Reuters.

The Egyptian pound weakened to as low as 32.20 to the dollar on Wednesday from 27.60 at the open of trade. It has since rebounded to 30.55 at midday on Thursday.
One banker affirmed that more than $800 million traded in the interbank market on Wednesday, an amount confirmed by a second banker. So far on Thursday at least $160 million had traded.
Bankers said there were signs of international institutions pouring money into Egypt ahead of Thursday’s auction of local treasury bills. Such investors had been largely absent since March.
Egypt has been suffering a shortage of foreign currency since the war in Ukraine hit tourism revenue, raised commodity import bills and led foreign investors to pull more than $20 billion out of the economy.
The pound has lost about 51 percent of its value since March.
The state MENA news agency stated a banker as saying dollar inflows on the interbank market jumped to between $650 million and $750 million on Wednesday after they had had been trading at $150 million on average.
More than $250 million flowed into the market from international institutions on Wednesday, MENA said.
According to Goldman Sachs, in a recent research note, the adjustment is not yet complete, and it must continue significantly before the supply and demand balance in the foreign exchange market is restored.
“Egypt had made progress in recent weeks, but the lack of significant inflows from the Gulf countries and the limited ability of the Central Bank of Egypt to provide liquidity in foreign currency in the market implied further depreciation of the pound and/or increases in its currency,” the bank’s economist, Farouk Sousse, said.
Sousse indicated that it is not clear how much the Egyptian pound will depreciate, adding that the pound may need to reach the decline implied by the parallel market.
While the pound has recorded high levels at the present time, “the parallel rate, according to the average daily price, is closer to 35 pounds to the dollar.” The exchange rate in force in the gold market is about 33 pounds to the dollar.

HSBC had expected that the Egyptian pound finds floor at varying levels between 30 and 35 against the dollar in the short term, indicating that interest rates may rise with inflation expected to rise beyond that at 25% in the first quarter of the year. 2023.
It also clarified that “even a decline to more than 30 against the dollar, which raises the losses of the pound’s price to 50% (raising the dollar’s gains to more than 100%), may not pressure the high enough import bill or lead to a sufficiently strong recovery in the economy.” Remittance inflows are immediate, but current account pressures are returning.