The dollar exchange rate continued its decline against the pound on Monday for the second day in a row and lost about 7 piasters of its value. The US currency lost more than 22 piasters of its value to the Egyptian pound on Sunday, recording its lowest level since 9 months. According to the Central Bank of Egypt (CBE), the average dollar price in the market fell on Monday to EGP 17.5789 to buy and EGP 17.6786 to sell, against EGP 17.6508 to buy and EGP 17.7508 to sell on Sunday. The official exchange rate at the CBE on Monday scored EGP 17.5592 to buy and EGP 17.6981 to sell against EGP 17.6303 to buy and EGP 17.7697 to sell on Sunday, while losing 4-12 piasters at several banks. Alia Mamdouh, director of Macro and Strategy at Beltone Financial told Daily News Egypt that the meeting of the Federal Reserve is getting close and it is not expected that they will increase the interest rate, which undoubtedly weakens the dollar compared to 2018. Moreover, Mamdouh added that there is a significant entry for foreign investors in fixed-income since May 2018, especially since foreign investors started becoming optimistic towards emerging markets (EMs), therefore there will not be a better place to invest in, due to currency stability and low risks even though yields more or less are close. Beltone forecasts for the dollar to fluctuate between EGP 17.60 and EGP 18 throughout 2019, however they will keep monitoring the development of the dollar in the coming days. Furthermore, Mamdouh mentioned that the decline of the dollar is a healthy sign as there is no pressure and all the inflows are getting better. For example, tourism and the all the growth is coming from investment, not private spending, thus there is no pressure on the currency. Over and above, Mamdouh said that the declarations of Tarek Amer, governor of the CBE are not a factor for the decline, adding that the market forces will be clearer after the repatriation mechanism was shut down, so if the inflow is high as currently it appears in the interbank, that is why the dollar has stabilised as part of the money entering was directed to the repatriation mechanism. Similarly, Reham El-Desouki, an economist at Arqaam Capital told Daily News Egypt, that it was expected that the dollar will be volatile after the shutdown of the repatriation mechanism, and that we will witness more volatility in the currency. El-Desouki also added that three of the main factors helping the decline of the dollar are the surplus of the dollar in the banks, the increased decline in the supply, and the decreased inputs. According to Eman Tawfik, head of the treasury at the Export Development Bank of Egypt, the interbank market witnessed a significant increase in the supply of the dollar against the Egyptian pound since the end of last week, resulting in a drop in the value of the dollar by 24 piasters to the pound on Sunday, marking a decline of 1.3%. She attributed the reason to the increased supply to the dollar inflows into the Egyptian market, represented by foreign investments, in particular to investing in treasury bills (T-Bills) and bonds in local currency, in view of the high rates of return on them. Furthermore, Tawfik noted that the yield on T-Bills has declined over the past two weeks by 1.75% due to the high demand to benefit from the difference in the return rates between the pound and major currencies such as the dollar and the euro, pointing out that the rate of coverage of annual tenders reached 5x. “It is natural for a currency to move up and down based on supply and demand through the entry or exit of investments in the market, since the CBE cancelled its mechanism for foreign investments repatriation since December 2018,” Tawfik said. Plus, she stressed that the recent increase in foreign investment flows after the cancellation of the repatriation mechanism is evidence of investor confidence in the Egyptian economy and their assurance in the ability of the interbank market to meet their foreign exchange needs if they wish to exit the market.
