CAIRO: The Egyptian pound traded at its lowest level against the dollar in 16 months, Reuters reported Monday.
The pound traded at 5.6972 against the dollar, which was its lowest mark since March 15, 2009.
To maintain its stability, the Egyptian authorities kept the currency above a key level of support, traders told Reuters.
“The CBE [Central Bank of Egypt] interferes in the market” to ensure that it remains stable, Magdy Sobhy, economist at Al-Ahram Center for Political and Strategic Studies told Daily News Egypt.
This can be explained by a desire to ensure that the pound maintains a competitive edge against the dollar so as to enhance the attractiveness of Egyptian exports bound for the US market, Sobhy added.
This is particularly important now due to a rebounding of the euro, which had been at its lowest point two to three weeks ago against the dollar, Sobhy stated, meaning that Egyptian exports to European markets have suffered as a result.
The pound is trading at a little over 7.2 against the euro.
To compensate for this loss in the European market, exports to the US were needed to offset this negative trend, he added.
According to Angus Blair, head of research at Beltone Financial, a Cairo-based investment firm, “In general, the pound is safe, and there shouldn’t be any need for concern.”
He supported Sobhy’s analysis that a weaker pound would increase the trade balance.
Blair and Sobhy both indicated that the pound has been experiencing a fair amount of volatility in recent weeks and months due to financial crisis, but as Blair noted as well, the increasingly turbulent political situation in Egypt played a role.
From investors’ point of view, the news that President Hosni Mubarak’s health is rapidly deteriorating is “the number one factor on whether or not to invest in the country.”
Inflation has also had an impact on the fluctuations in the value of the pound, Blair added, saying that “inflation is always a concern.”
Food prices play a role in the level of inflation, and as such need to be kept under control, he said, noting that this can be accomplished through reforms in the agriculture sector, especially regarding output and distribution.
“Food crops from the Delta that continually go to waste must be reduced,” he stated. Waste that occurs is largely due to poor logistics, and these dynamics result in having an impact on inflation.
Looking ahead, Sobhy warned that if the euro were to be devalued in the face of the pound, Egypt would lose its competitive edge in the European market for its goods.
“Egyptian exports to Europe will drop and vice versa, direct investment from Europe will slow as will tourism, all of which will result in having a negative impact on the broader Egyptian economy,” Sobhy stated.
Asked whether the pound would continue to fall, Sobhy said that “it depends on what happens in Europe” regarding the economy.
“Everyone, which includes the US, China and India, for instance, is waiting to see whether the financial crisis in Europe will worsen or not,” he indicated, but added that there is cause for optimism.
“The situation in Europe has improved over the past two to three months, as it seems that the bailout from the IMF and the Eurozone has had a positive impact,” he said.
It also seems that there are also perspectives for growth in once highly troubled European economies, such as Ireland, Spain and Portugal.
