How does UBS see FX inflows playing out over the next four quarters? Swiss investment bank UBS’ Global Research and Evidence Lab laid out three possible scenarios for where they see the supply and demand for FX going over the four quarter period ending 2Q 2025 in a report seen by Enterprise.

Under their base scenario, the lender expects the country to see excess FX inflows of around USD 7-8 bn available for reserve buildup in the four quarter period ending in 2Q 2025.

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The scenario we want: This figure could rise significantly to USD 19-20 bn over the four quarter period in a more optimistic scenario, assuming a 30% increase in FDI and portfolio inflows, alongside a rebound in remittances to 2021-2022 levels, according to the report.

The scenario we don’t want: If Suez Canal revenues fail to recover from their 1H 2024 levels, and Egypt does not regain full access to international capital markets, the report sees the country having a — albeit small — net FX outflow of USD 2-3 bn.

Remember: Suez Canal revenues continued to decline in May, falling some 64.3% y-o-y to record USD 337.8 mn. Over half of the ships passing through the waterway have diverted their routes via the Cape of Good Hope, to avoid the risk of being caught in the Houthis’ attacks on vessels passing the Red Sea, cutting of a substantial portion of state revenues.

The caveat: UBS advises that these figures should be interpreted as indicative rather than definitive forecasts. The report underscores the presence of considerable uncertainties, especially regarding portfolio inflows, which are susceptible to rapid shifts in investor sentiment. While the current outlook suggests a positive trajectory, actual outcomes may significantly vary due to diverse economic and geopolitical factors.

UBS’ advice to investors: The Swiss investment bank recommends holding Egyptian t-bills without hedging against FOREX fluctuations, citing a range-bound outlook for the pound between EGP 46-51 against the USD for the remainder of the year. Additionally, UBS’ positive FX outlook factors in the upcoming tourism season in the second half of the year, which traditionally sees increased tourism activity, as a favorable factor for the EGP. Moreover, UBS anticipates that the Real Effective Exchange Rate (REER) of the EGP will “rise only to its 20th percentile” compared to its ten-year average by the end of the year.

SOUND SMART: The REER is a measure of a currency’s value against a basket of other currencies, adjusted for inflation. This means that while the EGP may strengthen, it is not expected to become significantly overvalued and make Egyptian imports unattractive to foreign buyers.

But risks remain: Cutting rates prematurely and external tensions pose risks to holding t-bills, as they may “trigger rapid unwind of recent portfolio inflows,” the report reads.

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