Anticipating an Imminent Devaluation: The Assumption of a New Issue of the Egyptian Pound

A Bloomberg report says that Egypt is very close to a new and significant devaluation of its local currency, the pound sterling.

The agency added in the report that the London-listed securities of the Commercial Bank of Egypt indicate expectations of a new placement of the Egyptian pound.

She pointed out that the deposit receipts of a commercial international bank traded on the London Stock Exchange at a 31% discount to its shares in Cairo, the biggest discount since August 2016.

“This reflects expectations that Egypt will allow its currency to fall again,” financial analyst Hassan Malik told the agency.

“The reluctance to move to a fully flexible currency means that another big devaluation is coming,” Malik added.

She pointed out that there are several signs that Egypt is heading towards a fourth float of its currency from March 2022, including increased expectations of currency devaluation in Egyptian financial releases, increased discounting of International Commercial Bank deposit receipts on its shares in Cairo, and growing fears that pent-up demand for the dollar will not decrease without greater currency flexibility and stronger investment flows.

The value of the pound has fluctuated between a local black market that has topped 37 pounds to the dollar and a central bank rate hovering around 31 pounds to the dollar, prompting derivatives traders to hedge against the possibility of a sharp fall.

In the non-deliverable futures market, the 12-month foreign exchange contract fell to 41.6 per dollar. The pound has fallen about 50% since March last year and traded around 30.9 on Wednesday.

Source: Bloomberg agency.

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