Egypt’s pound appears to be settling around 5.75 to the dollar after a month of volatility that saw it slide to a five-year low then rally after a US quantitative easing plan spurred interest in emerging market assets.
"Most of the currency weakness was driven by the exit of foreigners from the market in the last two weeks of October and now liquidity has dropped and we are in wait-and-see mode, so there is no significant pressure on yields or downward pressure on the currency," said Brahim Razgallah, Middle East and North Africa Chief Economist at JP Morgan.
He expected the pound to remain between 5.70 and 5.79, where it might balance the government’s desire to keep exports competitive and boost economic growth but limit imported inflation.
"When it reaches 5.79 we believe there would be increased (central bank) forex intervention in the market," said Razgallah, adding that any strengthening of the currency could be limited by a recent drop in local treasury yields, cramping demand among foreign investors.
"We expect (treasury) yields to increase, as inflation is going upwards and there is upward pressure on world food prices. But we believe … that international investors will not come back to the Egyptian market as soon as all that."