2023-04-16 04:43:00
Dollar and Egyptian pound (iStock)
Egyptian Pound
Analysts question the adequacy of the reduction to return dollar flows
Concern increased in the market regarding an imminent devaluation of the Egyptian pound once morest the dollar, which may be the largest, prompting investors to search for cover to hedge once morest the expected loss.
Futures derivative contracts used to hedge risks or for speculation indicated that the Egyptian currency was approaching for the fourth time since March 2022, which disturbed the calm in the spot market, as the pound’s trading did not change much.
The 12-month non-deliverable futures contract on the currency posted its biggest decline since the last devaluation in January, falling 4.5% to 42.8 per dollar on Thursday. While the pound was trading at 30.9 per dollar in the spot market.
These moves reflect speculation by some market participants that the authorities will allow a sharp decline in the pound at the end – or following – the holy month of Ramadan, which ends in the second half of next week, according to an analyst at Swiss General, Garghali Ormosi.
“There is a consensus among market players — myself included — that the Egyptian pound will fall,” said Ormosi, an emerging markets analyst in London. “The longer the authorities wait to devalue the currency, the bigger the volume might be.”
He pointed out that anxiety and impatience hit the weaker corners of the market, with Egypt’s debts falling deeper into the dark zone, according to what was reported by “Bloomberg”, and viewed by “Al Arabiya.net”.
According to JPMorgan bank data, the additional yield required by investors to buy Egyptian dollar bonds, as well as treasury bonds, amounted to 1,199 basis points on Thursday, only 54 basis points lower than the highest level recorded in July.
The government has regarding $74 billion in principal and interest payments on Eurobonds due through 2061, according to data compiled by Bloomberg.
Slow progress
In turn, Nafez Zouk, sovereign debt analyst in emerging markets at Aviva Investors in London, said: “The situation has become a disappointing story for many, with the slow progress in devaluing the currency.”
The government pledged in October to move to a more flexible exchange rate, which would enable it to strike a $3 billion deal with the International Monetary Fund. However, the currency’s decline continued following long periods of stability.
“We’ve been expecting a devaluation for a while, and it didn’t happen,” said Zeina Rizk, executive director of fixed income at Arqaam Capital in Dubai. She added, “I do not think that the devaluation of the currency is sufficient to return the inflows.”
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