In April, the Egyptian pound lost a significant portion of its value, hitting a record low of EGP 51.73 against the US dollar after portfolio investments exited emerging markets amid trade tensions with the United States. Despite this, the pound managed to withstand the impact of those tensions and recover from the effects of the 12-day Israel–Iran war, gradually strengthening past the EGP 50 mark, then breaching EGP 49, and eventually reaching EGP 48.5 to the dollar—a level not seen in several months.
This appreciation has raised questions among local and international observers about whether the recovery is sustainable, and whether it is in the national interest to pursue a continued rise in the pound’s value or to prioritise growing Egypt’s foreign currency inflows from diverse sources.
To address these questions, it is essential to examine the primary drivers behind the pound’s recent gains, as these form the basis of exchange rate stability and appreciation, and will ultimately determine the currency’s future trajectory.
The first and most important factor, with a high degree of confidence, is the successful implementation of a flexible exchange rate management system, which has mitigated sharp volatility and bolstered confidence among both domestic and foreign investors. This has led to increased foreign currency inflows through the banking system and improved expectations for the pound’s future performance.
Egypt has also seen growth in its traditional sources of foreign currency. Export earnings rose to approximately $29.75bn, while remittances from Egyptians abroad surged to $36.5bn in the 2024/2025 fiscal year. Tourism revenues increased to $12.5bn. These inflows have not only strengthened the pound but also supported the steady growth of Egypt’s foreign exchange reserves, which reached $49.036bn in July. Net foreign assets within the banking sector recorded a surplus of around $14.94bn in the same month. This performance is particularly noteworthy given that Egypt lost a large portion of its Suez Canal revenues during this period.
Another key contributor has been a monetary policy framework marked by high interest rates. The positive real interest rate differential between Egyptian government debt instruments and US dollar-denominated assets has revived portfolio investment flows—so-called “hot money”—which exceeded $38bn by the end of June. This has reduced foreign currency outflows, encouraged domestic saving and investment, and indirectly supported the pound.
Adding to market confidence, major global investment banks, including Goldman Sachs, have assessed the pound as undervalued by around 30 percent, suggesting significant room for appreciation. This outlook, combined with ongoing economic reforms and improving fiscal performance, has prompted many investors to take long positions on the pound, betting on further gains.
The interplay of these factors has created an environment of stability and positive sentiment for the Egyptian pound, with scope for further appreciation in the short to medium term, particularly if Egypt continues to implement planned structural reforms and attract additional foreign direct investment.
The benefits of a stronger pound are clear. A higher exchange rate reduces the cost of imports, lowering the prices of consumer goods and production inputs, which in turn helps ease inflation and narrow the trade deficit. It also reduces the local currency value of Egypt’s external debt.
However, a stronger pound also carries risks that could undermine other macroeconomic objectives. A higher exchange rate could make Egyptian exports less competitive and increase costs for foreign tourists, potentially slowing tourism inflows—both crucial sources of foreign currency. Additionally, while high domestic interest rates attract portfolio investment, these flows are inherently volatile and could exit the market abruptly in response to global shocks, threatening currency stability. A stronger pound could also reduce the attractiveness of Egyptian debt to foreign investors.
The Central Bank of Egypt is therefore pursuing a balanced and innovative approach, using a combination of monetary tools, exchange rate flexibility, and sectoral initiatives to strike a balance between currency stability and export and tourism competitiveness. Its monetary policy framework—carefully managing both interest rate adjustments and exchange rate movements, alongside prudent oversight of portfolio flows, diversification of funding sources, and ongoing structural reforms—is designed to ensure sustainable economic stability.
The pound’s future trajectory will depend on the interaction of these domestic policies with investment flows, global market sentiment, and geopolitical developments. If Egypt continues to strengthen reforms and address its challenges, it can place itself on a sustainable path to currency stability, bolstering its economic standing and resilience to regional and international pressures.
Mohamed Abdel Aal – Banking expert
