News of the ADQ’s USD 35 bn investment in Egypt saw the EGP strengthen immediately in the parallel and derivatives markets. It remains unchanged at 30.95 to the USD in the official market ahead of banks opening today, with speculation now that we could see a “modest” devaluation as early as this Thursday.

The EGP strengthened in the market for twelve-month non-deliverable forwards (NDFs) as traders pulled back from positions that saw a sharp devaluation. Twelve-month NDFs saw the USD-EGPrate decline 11.5% throughout the day to 57.5 after the news broke, down from 65 at the start of the day and its peak of 66.7 at the end of January.

So did USD bonds: Egypt’s USD-denominated bonds “soared on Friday ahead of the announcement and continued their rally into the afternoon,” Reuters wrote. Bonds maturing in or after 2031 rose to their highest level in a year at 65.5-73.4 cents.

The parallel market looks like it’s starting to move: The announcement was made on a Friday, so it remains unclear how the parallel market FX rate will react in the long-run, but the greenback was reportedly trading at EGP 49.5-52 last night, down over 20% from EGP 62-63 before the announcement. Morgan Stanley sees the parallel market rate falling over the coming week and the size of the fall will depend “on the size of the new IMF loan, and the size of the FX adjustment.” Goldman Sachs also sees “a sharp drop in speculative/hedging demand for FX in the Egyptian economy on the back of the announced investment.”

The story received coverage from: Bloomberg | Reuters | Financial Times | The National.

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