Investment banks are turning more bearish on the Egyptian pound due to a combination of rising political risk and deteriorating fiscal outlook.
Barclays revised EGP forecasts down to 6 per dollar, adding: "We also recommend that investors reduce any exposure to the pound, though the significant carry (0.7 per mth) as well as the central bank’s commitment to a low-beta currency, make us reluctant to short the pound outright."
The EGP is recovering from six-year lows hit Monday due to Tunisian political chaos, with central bank intervention suspected.
BNP Paribas noted the potential for trouble in Egypt, given elections later in 2011. It suggests entering long dollar/short EGP trade via 1-mth NDF at 5.89 with a 6.10 target, implying depreciation of almost 5 percent.
