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US dollar continues to trade below EGP 16 - Daily News Egypt

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US dollar continues to trade below EGP 16

Why the US dollar broke the EGP16 barrier and where to next?


The US dollar continued to decline on Tuesday, below EGP 16, reaching EGP 15.98 to buy and EGP 16.08 to sell on average at banks on Tuesday, according to the Central Bank of Egypt (CBE).

The American currency declined on Monday against the Egyptian pound in the domestic market, breaking the EGP 16 barrier to EGP 15.99 to buy and EGP 16.09 to sell on average at banks, marking its lowest level since February 2017, according to the CBE’s data.

The value of Egyptian pound has risen 10.1% against the US dollar since the beginning of the year.

The price of the dollar on Tuesday at the National Bank of Egypt, Arab African International Bank, and the Housing and Development Bank reached EGP 15.99 to buy and EGP 16.09 to sell, while it reached EGP 15.98 to buy and EGP 16.08 to sell at Banque du Caire, Commercial International Bank, Alexbank, and Credit Agricole.

The exchange rate of the US dollar at the Suez Canal Bank fell to EGP 15.97 to buy and EGP 16.07 to sell, while it recorded EGP 16 to buy and EGP 16.1 to sell at Al Baraka Bank and Banque Misr.

The exchange rate at Abu Dhabi Islamic Bank registered EGP 16.01 to buy and EGP 16.09 to sell.

Daily News Egypt dug into the reasons behind this decline in the US dollar against the pound, interviewing investment banks’ analysts and economists, banks, and research centres to know their expectations for the US dollar price in 2020.

Reasons behind the Egyptian currency’s appreciation against US dollar

Radwa ElSwaify, head of research at Pharos Holding, attributed the hike of the EGP on Monday against the US dollar to the improvement of hard currency flows, especially from tourism due to the holidays season, in addition to remittances, lower importing due to the holidays season abroad, and foreign investments in treasury bills.

Agreeing with El-Swaify, banking expert Mohammed Badra, and Khaled El Shafie, head of the Capital Center for Economic Studies and Research (CCESR), stated that the US dollar’s decline came as a result of growing hard currency flows from variable sources, especially tourism, remittances, and exports, which were reflected in the rise of the Egyptian pound.

Meanwhile, Yehia Aboul Fotouh, deputy chairperson of the National Bank of Egypt, attributed the rise of the Egyptian pound against the American currency to the increase in the hard currency inflows.

Moreover, the remittances of Egyptian expats in September hiked about $2.3bn, recording a month-over-month increase of 33.2%, equivalent to $581.2m, compared to about $1.8bn in August. It also recorded a year-over-year increase of 32.8% in September 2019 compared to September 2018, the CBE added.

The remittances from Egyptian expats increased to about $6.7bn in the first quarter (1Q) of the fiscal year (FY) 2019/20, growing at an annual rate of 13.6%, compared to about $5.9bn in 1Q of FY 2018/19, the Central Bank of Egypt (CBE) announced on Tuesday.

Meanwhile, Aboul Fotouh told Daily News Egypt that the bank’s foreign exchange earnings since the decision to float the national currency on 3 November 2016, reached $67bn.

Moreover, Mohamed Abdel Aal, a board member of the Suez Canal Bank, said the recent decline in the price of the US dollar is due to the continued improvement in economic indicators of the country, which in turn has led to an improvement in foreign exchange flows from its traditional sources, such as tourism, remittances, and the Suez Canal revenues.

El Shafie also believes that the US dollar decline is considered a normal result of the economic reform programme adopted by the Egyptian government, expecting that the Egyptian currency will further strengthen in the coming period.

Furthermore, he mentioned that the American exchange rate is determined in banks according to the mechanism of supply and demand.

“We must know that the dollar is like any commodity in the market, subject to supply and demand, and then any increase in its demand leads to an increase in its price, and vice versa,” El Shafie stated.

US Dollar vs Egyptian pound in 2020

“We continue to see all odds in favour of a stronger EGP, with limited fluctuations, as demand gradually recovers. We believe there is no pressure on the local currency, a stance we expect to continue throughout 2020, with healthy limited fluctuations within the EGP 16 range,” Aliaa Mamdouh, director of Macro and Strategy at Beltone Financial.

“This is crucial, in our view, to support the CBE’s inflation target and monetary easing cycle,” she assured.

Mamdouh explained that Egypt’s gradual private spending growth, moderate capex lending recovery, and improving net oil balance position through 2020 are the main reasons behind Beltone`s conviction in the EGP.

Nevertheless, she mentioned that Beltone views all economic policies have geared toward maintaining a stronger currency, yet without any sort of intervention in the market, but rather through efforts to support the FX revenue stream from tourism and portfolio flows.

She noted that the positive sentiment and consumer confidence created with this strength in the EGP should reduce dollarisation, thereby supporting the fundamental reasons for the continuation of this trend for a longer time.

She pointed out in the Beltone’s MENA outlook “Mastering the Track” issued in November, that the EGP to appreciate within the EGP 15.9 and EGP 16 /$1 range.

Meanwhile, ElSwaify expects that in 2020, the average of the US dollar price will reach EGP 16.37, down from the current year’s average price of EGP 16.70 per $1.

Agreeing with El-Swaify, the banking expert Mohammed Badra told Daily News Egypt that on average the US dollar price will range between EGP 16 and EGP 16.5 during the next year.

Badra assured that maintaining this level of foreign exchange during the next year is important for reviving local tourism’s competitiveness with other markets and exports.

Disagreeing with Mamdouh, El-Sawify, Badra, and Abdel Aal, expected the dollar to continue its decline to EGP 14 by 1Q2020.

El Shafie also expected that the dollar will continue declining in 2020 reaching about EGP14 but before 2020 end.

Abdel Aal predicted that the FX reserves will continue to stabilise to cover Egypt’s imports for a period of nine months, which is an important factor for the stability of the exchange rate.

He stressed that despite the low-interest rates, the yield on debt instruments is still much greater than other emerging currencies, which helps to continue the flow of indirect foreign investment in Egyptian public debt securities.

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