The Egyptian pound faced a historic downturn this week, breaching the 50-per-dollar mark on the offshore market, highlighting the currency’s ongoing volatility. Yet, there is cautious optimism among financial analysts that the pound might regain some strength in early 2025, as seasonal portfolio outflows are anticipated to decelerate, according to a recent report from Goldman Sachs.
The currency’s slump to LE 50.8 against the USD marks a six-week slide, signaling the pound’s increasing flexibility following several devaluations. Since March, the Egyptian authorities have enacted four devaluations, aiming to adapt to economic pressures and maintain market equilibrium, as reported by Bloomberg.
The December decline is attributed to a surge in redemptions of short-term Treasury bills issued earlier in the year. Investors have been engaging in year-end profit-taking, resulting in a lower rollover of positions. This has been compounded by the finance ministry’s previous reluctance to raise yields at auction, a strategy intended to manage borrowing costs, explained Farouk Soussa, Goldman Sachs’ economist for the Middle East and North Africa.
However, a shift in monetary policy could alter the landscape. The Central Bank of Egypt is expected to begin cutting its record-high interest rates in the first quarter of 2025. This policy adjustment could lead to increased issuance across the yield curve, particularly with long-dated Treasury bonds. Such measures are anticipated to attract investors back into the local market, providing much-needed support to the Egyptian pound, according to Soussa.
The currency’s trajectory is closely watched by international investors, especially given Egypt’s strategic economic initiatives aimed at stabilizing and growing its economy. According to the World Bank, Egypt’s economy is projected to grow by 4% in 2025, driven by structural reforms and increased public investment. These factors could further bolster confidence in the Egyptian market, aligning with the anticipated currency stabilization.
Financial expert Dr. Laila Mansour, a professor of economics at Cairo University, notes that while the immediate outlook remains challenging, the medium-term prospects for the Egyptian pound are promising. “The anticipated policy shifts by the Central Bank, coupled with strategic fiscal adjustments, are likely to create a more favorable investment climate, potentially leading to a gradual recovery of the pound,” she asserts.
