May 29, 2023

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The Egyptian pound futures contract rose this much against the dollar

Dollar and Egyptian Pound (iStock)

Egyptian Pound

Analysts question the adequacy of the reduction to reverse the dollar surge

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Growing concern in the market about an imminent devaluation of the Egyptian pound, which could be huge, is prompting investors to seek protection against the expected loss.

Futures derivative contracts, used to hedge risks or speculate, marked the Egyptian currency’s fourth close since March 2022, unsettled the spot market as the pound traded little changed.

The 12-month non-deliverable futures contract on the currency, which posted its biggest decline since the last devaluation in January, fell 4.5% to 42.8 per dollar on Thursday. The pound was trading at 30.9 per dollar on the spot market.

The moves reflect speculation by some market participants that the authorities will eventually allow a sharp decline in the pound after — or after — the second half of the holy month of Ramadan, which ends in the second half of the holy month of Ramadan, according to Swiss-General analyst Karkali Ormosi.

“There is a consensus among market players – myself included – that the Egyptian pound will fall,” said Ormosi, an emerging market analyst in London. “The longer the authorities wait to devalue the currency, the bigger it will be.”

According to a report by “Bloomberg” and seen by “Al”, he indicated that anxiety and impatience hit the weaker corners of the market as Egypt’s debts fell deeply in the affected region.

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The additional yield required by investors to buy Egyptian-dollar bonds and Treasuries stood at 1,199 basis points on Thursday, just 54 basis points lower than the highest level recorded in July, according to JP Morgan bank data.

The government is paying about $74 billion in principal and interest payments on Eurobonds through 2061, according to data compiled by Bloomberg.

Slow progress

In turn, Nafez Zouk, sovereign debt analyst at emerging markets at Aviva Investors in London, said: “Egypt has become a disappointing story for many, with slow progress in devaluation.”

In October the government pledged to move to a more flexible exchange rate, which would help secure a $3 billion deal with the International Monetary Fund. However, the currency’s decline continued after a long period of stability.

“We’ve been expecting demonetisation for a while and it hasn’t happened,” said Jaina Risk, managing director of fixed income at Arkham Capital in Dubai. She added, “I don’t think demonetisation is enough to bring back credit.”

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