EGP rises to eight-month high against USD: The EGP rose against the greenback yesterday to its highest level since November 2024 yesterday — the USD was changing hands at EGP 49.02-49.12 at the end of yesterday’s trading.

This rebound came on the back of substantial USD-denominated inflow, two sources in the banking sector told EnterpriseAM yesterday. Easing geopolitical tension and attractive interest rates spurred unprecedented foreign inflows into short and medium-term debt instruments, the sources noted.

These “extraordinary inflows” coincided with the beginning of the new fiscal year, a decline in debt obligations, and rising tax revenues, our sources said. These factors created a window for the Finance Ministry and the Central Bank of Egypt to manage yield rates, thereby making both the primary and secondary markets more attractive to investors, the sources added.

Meanwhile, interbank USD transactions declined due to a surplus of USD liquidity held by most state and private banks in the country, further strengthening the EGP.

Will this momentum last? To maintain this trend, more foreign investors need to be drawn into the local debt market, primarily through the issuance of new debt instruments, the two sources said, adding that a continued weakening of the USD index’s impact on emerging markets’ currencies will also provide the EGP with a chance to recoup some of its losses. Finance Minister Ahmed Kouchouk recently said that Egypt plans to issue up to USD 4 bn in international bonds over the next year to help address its USD 11 bn external financing gap.

Foreign investors move early, propel EGP higher: The EGP rebound points to a preemptive move from foreign investors in treasury bills and bonds, as they see how Egypt is committed to having its upcoming review of its USD 8 bn IMF loan program completed, Al Ahly Pharos’ Hany Genena told EnterpriseAM. “They [foreign investors] are preemptively banking on a potential interest rate cut by the CBE during its upcoming meeting in August,” Genena noted. A combined fifth and sixth review of our IMF loan program is expected to conclude in September or October, unlocking a USD 2.5 bn tranche, Kouchouk said last week.

Genena sees the CBE’s Monetary Policy Committee slashing rates by 100 bps when it meets next month. Goldman Sachs said in a recent research note that it sees no interest rate cuts before October, while Deutsche Bank is pencilling in a 200 bps cut in August, but highlights inflation risks that could influence the CBE’s decision at the time. The CBE decided earlier this month to leave interest rates unchanged in its fourth meeting of the year, in a move that marked a halt in the committee’s easing cycle, after it cut rates by 225 bps in April and 100 bps in May.

Current talks with Qatar and Saudi Arabia regarding new investments could have also played a role, Genena noted, adding that significant USD inflows are expected to hit Egypt in 4Q.

REFRESHER- Qatar is reportedly set to invest USD 4 bn in a major tourism development on the North Coast. The news comes a year after Abu Dhabi wealth fund ADQ signed the USD 35 bn agreement to develop Ras El Hekma. Kuwait is in talks to convert USD 4 bn of deposits it holds in Egypt’s central bank into direct investments across several sectors, while Saudi Arabia also plans to convert some of its USD 10.3 bn in deposits into long-term investments.

The EGP rebound aligns with Goldman’s expectations: The global investment bank noted that the EGP spot rate will be supported by anticipated strong portfolio inflows. This outlook is also underpinned by strengthened international reserves, which provide an additional layer of support for the EGP’s stability. Another aspect is that our local currency remains significantly undervalued, as the EGP is currently the second most undervalued currency among frontier FX Goldman Sachs covers, at about 30%. Goldman estimates that the EGP is likely to remain undervalued at 25% over the next 12 months, if the current exchange rate stabilizes near its current level.

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