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The Egyptian pound’s recent surge was the strongest fortnightly move in an emerging market currency in at least five years, according to Renaissance Capital, but the EM-focused bank has warned that the currency could be setting itself for another fall.
The currency has strengthened a little over 14 per cent in the last two weeks, to E£15.78 per dollar.
In November the Central Bank of Egypt devalued the pound and announced a transition to a floating exchange rate regime, but RenCap analyst Charles Robertson suggests the CBE may have intervened to support the currency in an attempt to stem the country’s rampant inflation rate.
Egypt is one of the world’s largest importers of food, and a weaker pound drives up the cost of overseas purchases. Prices of food in Egyptian cities rose 6.8 per cent in January alone, while household items rose 8 per cent.
Mr Robertson had predicted that recovering trade and tourism would help the pound to rally over the first half of 2017, and stressed there is no direct evidence of intervention, but said “this has all happened too quickly for my liking”.
RenCap had targeted a level of E£15.50 per dollar by the middle of the year, and said the currency “still offers value. But a pull-back in the coming days/weeks would not surprise us at all”.