CAIRO: The Egyptian pound weakened on Wednesday to its lowest level against the US dollar since June 2006, as dealers said foreign investors were selling pounds and the central bank apparently condoned the drop.
The pound slid to 5.7580 against the dollar from Tuesday’s close of 5.7340. It has dropped relatively sharply for three days, after previously remaining stable around the 5.70 level since late August.
Some traders said the central bank might be letting the pound weaken as it bought dollars to build foreign reserves which it could use to cope with any market volatility before elections. President Hosni Mubarak, 82, has not said if he will run in next year’s presidential poll.
The slide of the pound accelerated as investors sold to limit their losses, dealers in Cairo and London said.
"I think there was an assumption that the (central bank) would be there to support the offer in spot, and when they weren’t the market got spooked," said a market source who asked not to be named.
"People take stop losses and it all feeds on itself."
Egypt’s official reserves climbed to $35.53 billion at the end of September, a new high. Analysts believe the central bank is also building a separate pool of foreign currency funds that does not immediately appear in official figures.
Egyptian central bank officials were not available to comment. The bank has not issued any recent statements on its currency policy.
A parliamentary election is scheduled for Nov. 28 and is being watched closely to see how much space the authorities give to the opposition in the presidential poll due in 2011.
There is no obvious successor to Mubarak, in power since 1981. The biggest opposition group, the Muslim Brotherhood, has said it will contest 30 percent of seats in the November polls and dozens of its members have been detained in police raids, the group says.
"The general impression we’re getting is that locals are looking to buy dollars ahead of the elections," said a strategist at BNP Paribas.
"The political situation in Egypt is always very uncertain, not in terms of the election outcome … The question is more what will happen surrounding the elections. How will the Muslim Brotherhood react and will there be some kind of fallout?"
However, traders said it was not clear what specific catalyst had prompted the pound’s slide in the past three days.
"We’ve seen leveraged hedge funds exiting Egyptian positions," possibly to trade the euro against the dollar, said one currency trader who asked not to be named.
Another trader said foreign investors who had parked money in Egypt to acquire pounds had been unable to do so because of thin trading volumes, and were now shifting into euros.
The pound "was a well oversubscribed position due to low volume, and people are putting their money to use," the trader said.
