After trading at LE5.98 to the dollar in June, the Egyptian pound regained some ground briefly since the begining of July reaching LE5.96 earlier this week to return to the LE5.97 level on Thursday The United Arab Emirates' decision to support the Egyptian economy with $3 billion is believed to have enhanced the local currency's stand on the short term. According to Ezzat Abu Zeid, manager of Brent Exchange Company, the pound started to slide against the dollar starting the end of May, when it was sold at LE5.94 and fluctuated through June taking an upward trend, and reached LE5.98 at the end of June, the worst fall in six years. Abu Zeid attributes this fall to the "fierce" demand on the dollar, especially by companies and banks, which took place from 25 to 29 June. The reason behind the exceptionally high demand, Abu Zeid asserts, is the struggle by companies to cover their short-term obligations before the end of the fiscal year on 30 June. Belal Khalil, deputy head of the exchange division of the Federation of Egyptian Chambers of Commerce (GFCC), agrees with Abu Zeid, adding that most companies and organisations had to cover their short positions before the end of the fiscal year on 30 June. "Moreover, the Egyptian government's decision to reject $3 billion offered by the International Monetary Fund [IMF] took its toll on the local currency. The market was expecting the dollars of the IMF," Khalil added. Political unrest and unsatisfactory security conditions also had indirect consequences on the depreciation of the pound during the last week of June, according to an expert. "Violent clashes in Tahrir Square last week contributed to the slide of the pound against the dollar," says Salama El-Khouli, an economic expert at the National Bank of Egypt. Although the pound is in a slightly better condition now, he added, the continuing unrest prevents fast recovery. "Potential foreign investors are wary of the political and security situation in Egypt, so they simply postpone, or even cancel, their investment plans due to what is going on," El-Khouli explained, adding that many of the market's local or foreign investors continue to sell their shares and convert Egyptian pounds to dollars and just fly away in search for a more stable market to invest in. "Less foreign investments mean less economic growth, less exports and more imports, something that will bring down the pound's value on the long run," he explained. However, Abu Zeid expects the pound to appreciate to LE5.94 to the dollar by the beginning of next week. Khalil believes it will be traded as low as LE5.91 by the end of this month, and expects it is not going to go any higher. Egyptians who live and work abroad, Khalil noted, have started returning to Egypt for their summer vacation since the beginning of this month, and their conversion from different currencies they possess to Egyptian pound will help boost its value. "Furthermore, imports of Ramadan goods like yameesh [dried fruits and nuts popular during the holy month] will drop this year by approximately 40 per cent," Khalil stressed. Importers are afraid demand for the products this year will be low since there is a wide belief that people do not have the appetite for lavish meals during this year's Ramadan, he added. El-Khouli also believes that the pound will stabilise in the coming few months due to expected growth of foreign currency earnings from tourism and the Suez Canal, the two main earners of foreign currency, in addition to an expected stability on the political and security levels after the elections in September. Since the beginning of the 25 January Revolution, the Egyptian pound has been fluctuating, and fears mounted that the local currency might plunge into uncontrollable depreciation. The Central Bank of Egypt (CBE) says that it has only interfered once in early February in support of the pound and has denied any other interference. However, observers believe it may be doing so indirectly, particularly with the continued slide in Egypt's foreign currency reserves. The CBE announced on Tuesday that the foreign currency reserves reached $26.57 billion at the end of June, down from $27.23 billion a month earlier and $35.22 billion in June 2010.
