Where is Egyptian Pound Heading Against Dollar in 2023?

All the International rating agencies and economic tycoons failed to predict the price of the Egyptian pound by the end of 2022.

Analysts at Fitch Solutions expect the Egyptian pound to weaken against the dollar from EGP 19.67 on October 18, ending the year close to EGP 21.

Similarly, an analysis by Trading Economics indicates that pound could trade at 19.93 by the end of this quarter and 21.21 in 12 months’ time.

Wallet Investor’s forecast for 2025 against the euro showed the EUR/EGP pair ending the year at 20.754, up from 19.724 at the end of 2022 and 20.063 at the end of 2023.

According to Gov.capital’s  forecast for 2025, the algorithm-based predictions provider expected the currency pair exchange rate to spike to the 52.5-77.0 range in 2025. 

Algorithm-based predictions are a wrong way to get the future value of a currency, as it only calculates the percentage difference in one period, and applies it to other periods. Example: If the Egyptian pound loses 5 pounds against the dollar in a period of one month, then it loses 10 pounds in a period of two months, and 20 Egyptian pounds in a period of four months.

Zawaya said that he Egyptian pound is expected to trade at EGP 21 against the dollar by the end of 2024.

Financial market expert Hanan Ramses of the Egyptian Stock Exchange stated earlier that the Central Bank of Egypt (CBE) is likely not to devalue the pound in 2022, as it was devalued twice during the year.

The Egyptian pound was devaluated from EGP 15.7 to EGP 18.7 in March 2022 and then another devaluation occurred at the end of October to bring the Egyptian currency to approximately EGP 23.16.

Egypt then witnessed a gradual liberalization of the currency until it hit EGP 24.7 on the last day of the year 2022.

The central bank then decided to raise the interest rate by 300 basis-point at once to tighten monetary policy, reduce the money supply. The money in the hands of individuals would be put in banks to receive a higher return and at the same time reduce borrowing to bring down the demand for goods and products and thus curbing inflation, which recorded 19%.

Lower borrowing costs also led to higher demand for dollars, and the moment the CBE raised interest, the US currency on the parallel market received a major blow.

Some citizens preferred not to put their money in banks to preserve its value, and buy the dollar and abandon the national currency, and this caused a major crisis, which is the loss of confidence in the Egyptian pound, and its solution may be difficult.

The targets for the dollar is to get close to its official price in banks, and the basis is the extent of its availability, the return of economic activity and the release of exports. The release will cause a drop in the demand for dollars and thus a drop in its value against the Egyptian pound.

If the dollar is available, its price will decrease, and if it is not available, then the upward cycle will return. It will not have a price cap.

Finance Minister Mohamed Maait, said earlier that every 1% increase in the interest rate incurs EGP 32 billion for the public budget, then the central bank’s decision issued will raise the value of the public debt by about 96%.

Fighting high inflation and high prices and supporting the stability of markets, including the currency market, outweighs any economic and financial consideration, even if the increase in the interest rate negatively affects the rate of economic growth and raises the level of public debt.

Inflation stirred up by Egypt’s second currency devaluation this year has made another sizable increase in interest rates all but certain on Thursday, a decision that may also signal how the central bank responds to pressure to allow the pound to weaken further.

Policy in Egypt is at a crossroads after a year that’s seen the pound lose more than a third of its value in one of the worst performances globally, besides the Turkish lira, the Japanese yen, and the Indian Rupee.

With the release of the blocked imports, and after removing the requirement for importers to acquire letters of credit, more pressure could be added on the pound, and the demand for the dollar, yet, Egypt is expected to receive around $18 billion from the IMF loan, and other international investors, namely Gulf countries.

Once the letter of credit requirement is lifted, "what we would expect to see is daily volatility in the exchange rate that is similar to the volatility observed in truly floating exchange rate regimes", the IMF mission chief for Egypt Vladkova Hollar said, in an interview with Reuters.

"We will be looking very closely at how the FX market is functioning, which would then give us the ability to have a conversation with the authorities and our board as to (whether) what we are seeing is really consistent with a flexible exchange rate regime," she added.

Demand for dollars might be softened by a weaker pound, she said. "If I wanted to import something at EGP 19.7 and the exchange rate is now 24.7, that's a significant change in my costs."

"We know that the central bank has not intervened to inject reserves into the foreign exchange market since we reached staff level agreement. But we also know that the backlog of imports has not been cleared," Hollar added.

An immediate disbursement of about $347 million under the programme was available to Egypt earlier in December.

Economists say one reason Egypt has struggled to attract investment despite repeated IMF programmes and reform plans is the prominent role of the state in the economy, and the 2016 devaluation.

"A state ownership policy, which Egypt is due to approve soon and is meant to demarcate the parts of the economy that are open for private investment, would be a "first critical document that we need jointly to be able to develop a more concrete action plan", Hollar said.

According to the IMF, a heavily managed exchange rate has not served Egypt well. It has led to periods of building imbalances, which in turn, have led to the loss of central and commercial bank foreign currency assets, forcing the central bank to abruptly devalue the Egyptian pound relative to other currencies, losing investors confidence in the health of the Egyptian economy.

The objective of the IMF policies under the Fund-supported program is, therefore, for the value of the Egyptian pound to be determined freely against other currencies, with a flexible exchange rate.

Under this framework, one would observe two-way movements in the exchange rate, as it appreciates or depreciates in line with economic conditions.

"Flexibility in the exchange rate encourage greater investment by reducing the likelihood of large abrupt changes in the exchange rate," IMF added in a report.

In the economy, the greater the supply of dollars, whether through loans or the gross domestic product, the lower its value against local currencies. Nevertheless, speculators are trying to make big gains from the foreign exchange market, which has pushed the US currency in Egypt to record levels, as they sell it, then sharply devaluing the dollar as you buy it, for double profits.

Egypt’s tourism revenues have been hit by the Russia-Ukraine war as it is a popular holiday destination for Russian and Ukrainian tourists. Investors have liquidated their holdings in Egyptian bonds to reduce their exposure to emerging markets as risk aversion has increased amid the ongoing geopolitical turmoil, not to mention that most of the Egyptian wheat and grains come from this part of the world.

On the black market, which does not actually exist, the Egyptians hear that the real value of the dollar is between 33 and 37 pounds, however, if they try to sell at this price, they will not be able to.

Unofficial speculators are telling citizens that dollar will reach EGP 50 to sell them the dollar at EGP 33-36, officially sold at EGP 24.7 in banks, to make the most out of their victims.

The IMF wants to see the Egyptian pound totally liberalized, and not devalued, meaning that it should be freely floating with the demand and supply of the market, without state interference.

A spokesman for the Egyptian Cabinet Nader Saad announced that the dollar crisis is on its way to being resolved, and that "the numbers prove that."

Saad added, in a statement to "Sada Al-Balad" channel, that earlier there were no dollar resources for the government and the Central Bank, and indicated that "the ability of the banking sector to deal with the current situation contributed to the release of commodities worth more than $6 billion."

He added, "The past period witnessed a major breakthrough in the exit of goods from the ports, which had a positive effect and increased supply in the markets," and that "the government seeks, during the coming periods, to return prices to what they were before the month of Ramadan and to provide all food commodities."

He revealed that there are commodities worth $8.5 billion in the ports, and that the coming period will witness the release of commodities worth $3.4 billion.

He stressed that "no fines will be collected related to the customs release of the goods," and indicated that the damaged goods in the ports will be released as soon as their owners submit a request for release.

Whether or not the pound will get devaluated by an additional two pounds against the dollar in 2023, or even reaches 30 pounds, the pound will not collapse to the levels heard by speculators, as Egypt, during the next four years, will bridge the financial imbalances with about $18 billion, in addition to tourism revenues, the Suez Canal, gas exports, and others.

Some Egyptians know the price of the dollar in the parallel market from subtracting the price of a certain commodity in foreign markets, namely gold, with its price in the Egyptian one.

Meanwhile, with lower inflation in the US, the Federal Reserve will have to lower interest rates, somewhere by mid-2023, and as the rate drops, hot cash will return to countries offering high rates like Egypt.

Currency futures are a transferable contract that specifies the price at which a currency can be bought or sold at a future date. Like any other currency, the Egyptian pound is put on international futures market. The Egyptian Pound is expected to trade at 25.5 by the end of this quarter, and estimated to trade at 27.9 in 12 months time. 

In fact, since  March 2022 devaluation, the dollar has been on a tear against major global currencies. Much of the world is under increasing pressure as tightening financial conditions in the US have pushed the dollar higher than ever.