Traders are retracting their expectations of a devaluation of the Egyptian pound as City Group suggests that the central bank is likely to hold off such a move until at least the end of next month.
Louis Costa, the strategist for City Group in Central and Eastern Europe, the Middle East, and Africa, stated that it is likely that the Egyptian central bank will not make another significant reduction in the pound’s value over the next month or so.
Costa stated that City Group’s strategy is to sell the dollar against the Egyptian currency in the non-deliverable futures market for one month “based on the expectation that the pound will not decline before the end of the current fiscal year.”
Egyptian Pound Gains Strength Against the Dollar in Futures Contracts
In the non-deliverable futures market, the one-month pound contract traded around 32.9 on Thursday, recovering from its lowest-ever closing level of 35.3 on April 25, according to Bloomberg.
By comparison, the 12-month Egyptian pound futures contract stood at 43.3 to the dollar, indicating expectations of a sharp decline in the currency’s value eventually. The Egyptian currency traded at 30.9 on Thursday, having lost nearly half its value in the past year.
A senior official at the International Monetary Fund stated this month that the government is “serious about implementing a flexible exchange rate for the pound,” which is a key requirement for a $3 billion loan agreement.
Why EGP is suffering?
The ongoing Russian war in Ukraine has significantly affected Egypt’s economy, increasing pressures on the local currency. Egypt relies on Russia and Ukraine as the top suppliers for its wheat imports. This dependency has caused a surge in food prices, ultimately contributing to soaring inflation rates in the country.
Egypt’s pound, currently ranked as the sixth worst-performing currency since the start of the year, continues to plummet, amidst these economic woes. Experts predict that the currency may still have room to fall further, highlighting the long-lasting impact of the war on Ukraine for nations like Egypt.
