US, Saudi Arabia, UAE, UK express concern over escalating tensions in Middle East : Joint Statment    Newspaper prices increased to make up for press institutions' losses: Egypt's National Press Authority    Egypt's domestic liquidity up 7.8 percent in 9 months    Egypt's PM witnesses signing of agreement with Mercedes-Benz    Pompeo says he discussed Gulf maritime security with Saudi king    'Everything is stolen from us': Tunisians fight to preserve cultural heritage    Early Australia exit heaps pressure on embattled FFA    IOC begins conference to decide on 2026 Olympics host    Take focus off Mahrez if Algeria are to prove successful, says coach    Google to reopen its office in Egypt: Lino Cattaruzzi    Turkey's opposition strikes blow to President Erdogan with Istanbul mayoral election    Pompeo visits Saudi Arabia as US prods Iran for talks    Sisi praises Egyptian fans' behaviour during 2019 AFCON opener    U.S., China should make compromises in trade talks: vice commerce minister    European markets to open lower as Middle East tensions linger    Oil climbs as Middle East tensions simmer    Asian stocks trade mixed; oil rises as U.S.-Iran tensions continue to linger    Egypt slams Human Rights Watch director's tweets on Morsi's    Egypt dazzles us with a breath taking AFCON 2019 opening    Egypt makes winning start to Africa Cup of Nations    Mourning a dog can be harder than losing a relative or friend    Egypt says to launch hepatitis C medical examination initiative in Africa    China needs around $440 bln to clean up rural environment – People's Daily    Egypt calls for speeding up talks on Ethiopia's GERD dam    Egypt trying to halt Tutankhamun statue sale in London    20 million drug tablets smuggling foiled in Damietta    Art Alert: Little Eagles to screen at KMT    New academic year to start 21 Sept: Egypt's Supreme Council of Universities    INTERVIEW: Investigating terrorism funded by Qatar and Turkey    In Photos: Egyptian Museum in Tahrir inaugurates new path for the visually impaired    Playing victim    Morsi dies    A painless commute    United against corruption    Africa welcomed home    Food on Facebook    Beef olives with an Oriental twist    Tanker war puts pressure on Iran    Losing is not an option    Promoting football tourism    Al-Sisi in Eastern Europe    Singer Nesma Mahgoub at Cairo Opera House Summer Festival    Mervat Shazly showing at Salama art gallery    The mummies go to the NMEC    Muslim Brotherhood: Playing victim    Egypt FM spokesman condemns OHCHR statement on Morsi's death for 'lack of integrity and objectivity'    Egypt's State Information Service slams Human Rights Watch director's tweets on Morsi's death    Saudi Arabia celebrates Eid al-Fitr with 13 Arab artists    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.





Why the dollar went south
Published in Al-Ahram Weekly on 16 - 05 - 2019

Since the beginning of the year, the US dollar has been taking a plunge, with the buying price at most of Egypt's banks hovering around LE16.99.
The trend was not anticipated by economic experts, who nevertheless believe that the dollar's journey southwards will come to a halt by the end of the year.
Foreign currency inflows, whether from treasury bills or bonds, an improved trade balance, and greater tourism revenues, may all be reasons behind the depreciation of the dollar against the pound by 88 piastres since the beginning of 2019, said Sara Saada, a macroeconomic analyst at HC Securities.
The foreign currency inflows might not last for long, however, and the dollar's depreciation against the pound might not continue at the same pace as over the past few weeks, she added.
The retreat in the value of the dollar depends on the source. If the dollar inflows come from tourism revenues or the improved balance of trade, the dollar's depreciation is likely to continue, but if it is the result of increased foreign investments in treasury bills and bonds, the decreasing value against the pound will cease, Saada explained.
Mohamed Abu Basha, head of macroeconomic analysis at EFG Hermes, said the dollar would likely stabilise soon, particularly with the slowdown in foreign investments in treasury bills and bonds, the decrease in interest rates, and the rise in exchange-rate risks in the light of the recent appreciation of the pound.
On 15 May, the Commercial International Bank (CIB) was the first in a chain where the dollar was trading lower than the LE17 seen since the floatation of the pound in November 2016.
Radwa Al-Sweify, head of research at Pharos Holding, an investment bank, said the pound's value had increased against the dollar thanks to increased foreign investments in treasury bills and rising tourism revenues.
Foreign investments in Egyptian treasury bills reached US$16.8 billion in April, up from $14.6 billion in February, and revenues from tourism increased from $7.6 billion in 2017 to $11.4 billion in 2018. This means that “more than $1 billion of monthly foreign inflows helped the pound appreciate against the dollar,” Al-Sweify said.
The increased foreign currency inflows are attributed to the Central Bank of Egypt's (CBE) success in decreasing the pressure on reserves, scheduling external debt payments, and increasing foreign currency inflows in the form of foreign investments in treasury bills and a rise in tourism revenues.
Foreign currency reserves stood at $44.2 billion at the end of April, enough to cover import demands for many months to come.
The dollar's depreciation against the pound is unlikely to continue in case the trade war between the US and China heats up or the political wrangling between the US and Iran develops, Al-Sweify said. “Developments on the international stage may affect investments in emerging markets and foreign currency inflows to Egypt,” she added.
The rise in the value of the domestic currency against the dollar is determined by short-term factors related to foreign investments in domestic debt, said Israa Ahmed, a macroeconomic analyst at Shuaa Capital, an investment bank.
This year will see domestic pressures push up the dollar against the pound, she said, such as rising inflation due to lifting subsidies on fuel and the slowdown in foreign investments in domestic debt.
“With the advent of summer, foreign transfers from abroad increase, resulting in a rising supply of foreign currency,” Abu Basha said, adding that he expected the pound's strength against the dollar to last for a limited time.
Foreigners may not opt to continue pouring investments into Egyptian treasury bills, especially with the decrease in their interest rate, he added.
Abu Basha anticipates that the dollar's value will increase against the pound by the end of summer when demand for dollars increases due to desires to transfer profits abroad.
A Shuaa Capital report released last week said that the pound's current exchange rate was below its real value and that there were no structural pressures against it that could lead to a sharp depreciation in its value in the near future.
“The current exchange rate shows a poorer value for the pound, but it is not far from its real value,” the report stated.
Economic analysts expect the CBE's Monetary Policy Committee, which convenes today, to lower interest rates in the light of reductions in inflation, a move that could slow down the gains of the local currency.


Clic here to read the story from its source.