CAIRO: The value of the Egyptian pound recently appreciated against the US dollar after a global downturn knocked the dollar down to a 15-year low.
Within the past two weeks, the US dollar exchange rate fell from LE 5.75 to LE 5.69 and later to LE 5.64, attributed to strong foreign direct investment (FDI), a rise in real estate investment projects that require local currency as well as the global depreciation of the dollar.
“FDI pours loads of cash into the country which can appreciate the value of the Egyptian pound against the dollar, explained Reem Mansour, senior economist at HC-Securities brokerage firm.
She added that the dollar had also depreciated vis-à-vis other major currencies, adding more value to local currencies.
“A local investor will be more interested to put his/her money in a currency that gains value rather than loses it, triggering a sharper fall in demand on the dollar.
Foreign exchange bureaus also agree that demand for the dollar has been declining. “There is plenty of US dollar supply on the market; yet there is almost no demand for it, said Hamdy Abdel Fattah, trader at El-Israa exchange bureau, adding that the current superfluous reserve of US dollars caused its value to plummet particularly over the past few days.
Reserves in US dollars can be a burden on the government, as it is much easier to invest in Egyptian pound assets than dollar assets, which led the government to boost the dollar supply in the market.
Financial experts are skeptical whether that 1.5-2 percent drop in the value of the dollar will have tangible effects on the national economy.
“It can have a positive effect on prices and put downward pressure on inflation rates, Mansour predicted. “Egyptian imports from the US are relatively high [between 30-40 percent]. A weaker dollar against the pound translates into less expensive imports and [commodities], taking pressure off consumers.
However, the depreciation can bear a downside effect on the stock market. “A fall in the value of the dollar can discourage foreign investors from entering the market as the Egyptian pound becomes relatively more expensive. Still, there is a trade-off, as there is potential to gain more profit, she added.
To its credit, the Egyptian pound managed to hold its ground in face of the depreciating dollar thanks to FDI, Eurobond investments, and revenues from the Suez Canal, which amounted to around $4 billion.
“Recently, the Egyptian pound has been transcending against all other currencies, as well, Mansour said.