New Placement Awaited for Egyptian Pound

Bloomberg reported that investors and pundits are retreating from expectations of a depreciation of the pound, as Citigroup predicts that the central bank is likely to suspend movement until the end of next month.

Luis Costa, head of strategy for Central and Eastern Europe, the Middle East and Africa at Citigroup, noted that another sharp fall in the pound before the end of the fiscal year on June 30 could thwart the government’s goal of closing the budget deficit by 6.5%. and stabilize the country’s debt relative to output.

A note released on Wednesday said the central bank will likely wait until tourism revenues are around $14 billion before making a decision on the exchange rate.

It is likely that the central bank will not pursue another strong devaluation of the pound over the next month, Costa wrote, noting that Citigroup’s strategy is to sell dollars against the Egyptian currency in the monthly non-deliverable forward market on the back of seeing the pound not depreciate until end of the current financial year.

Derivatives used to hedge risk or for speculation pointed to the imminent depreciation of the pound for the fourth time since March 2022, but over the past two weeks, traders have lowered their expectations; In the non-deliverable futures market, the one-month pound traded near 32.9 on Thursday after recovering from an all-time closing low of 35.3 on April 25.

Despite this, the pound traded at 43.3 per dollar for 12 months, indicating expectations of a possible sharp depreciation, while the Egyptian currency traded at 30.9 on Thursday after losing nearly half its value last year.

The pound has seen stability since last March, despite its black market depreciation, which has led some investors to question Egypt’s commitment to exchange rate flexibility.

A senior International Monetary Fund official said this month that the government is serious about introducing a flexible exchange rate, a necessary condition for Egypt to finance a $3 billion loan.

The GCC countries are waiting for more currency certainty before making billions of dollars in investments. Egyptian officials expect to receive at least $2 billion from the sale of some state assets by the end of June.

Source: Bloomberg.

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