Further fall in USD against Egyptian pound indicates better economy

The Egyptian pound strengthened 72 piasters against the U.S. dollar on Saturday compared with December last year, state-run Ahram newspaper reported.

According to the last updated figures released by the Central Bank of Egypt (CBE), the average price of the dollar reached 17.06 pounds for purchase and 17.16 pounds for sale, reaching the lowest dollar price since March 2017, agency reports.

The CBE said that the dollar price ranged between 17.56 to 17.85 pounds for purchase and 17.78 to 17.97 for sale in 2018.

Bankers attributed the drop in the dollar price against the Egyptian pound to the increase in foreign exchange flows into the Egyptian market and the banking system since the beginning of this year. The total remittances of Egyptian expatriates in state-run Banque Misr reached 2.7 billion dollars in January and February, while the forex flows into the National Bank of Egypt were estimated at 3 billion dollars in the same period. “The continuation of the dollar’s decline mirrored improvement in the
economic indications, attractiveness of the investment environment as well as increase of the foreign cash in the banks and the foreign cash reserves,” said Waleed Gab-Allah, professor of financial and economic jurisdictions at Cairo University.

“The drop in the dollar price happened amid the increase in inflows, along with the trust of the international institutions in the economic reform program, and the return of investment funds’ inflows in debt instruments,” he told Xinhua.

The economic expert added that there are many positive indicators contributing to the drop in the dollar’s price, including the International Monetary Fund’s (IMF) praise of the economic reforms. January and February witnessed a significant increase in dollar’s inflows after 2 billion dollars, the fifth tranche of the IMF loan, entered the CBE and the 4-billion-dollar bonds sold by the Ministry of Finance in the international markets, Gab-Allah added.

He expected further drops in the price of the dollar as forex flows were expected to continue. On the other hand, Mohsen Adel, financial expert and vice-chairman of Egyptian Association for Finance and Investment, expected the U.S. currency to see a state of stability.

The dollar’s price will stabilize at the level between 17.25 and 18.50 pounds in 2019, Adel said. The Egyptian pound will decline in the second half of this year because the appreciation of the pound against the dollar to the level of 17 pounds may reduce the appetite of foreign investors towards investment, he said. If foreign investors decide to exit the Egyptian market, it will create an increase in demand for the dollar, he added.

However, Adel emphasized that foreign direct investment (FDI) inflows will determine the direction of the Egyptian pound. Therefore, it is important to attract FDI in different production sectors other than the energy sector. Egypt devalued its currency by 48 percent in 2016, allowing it to float freely, as part of a three-year IMF loan worth 12 billion dollars.