EGP weakens against the greenback after weeks of gains

After weeks in the green, the EGP saw notable volatility on Sunday with the EGP / USD exchange rate approaching the EGP 48 mark, rising about EGP 0.51 during yesterday’s trading. Banking sources told EnterpriseAM that the fluctuation reflects natural market movements driven by supply and demand dynamics, particularly hot money outflows that tend to intensify toward the end of the year. A banking source explained that Egypt’s flexible exchange rate policy means such swings are normal as long as they remain within safe limits.

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The recent improvement in USD liquidity has come mainly from three sources — remittances from Egyptians abroad, higher tourism revenues, and temporary inflows of hot money, former Industrial Development Bank Chairman Maged Fahmy told EnterpriseAM. These factors created a USD surplus that eased pressure on the exchange rate and even allowed the EGP to strengthen slightly at times. But, Fahmy said, these are not the result of structural reforms that would have a lasting impact.

The real, sustainable drivers of a stronger EGP would be increased investment, higher production, greater exports, and import substitution, according to Fahmy. Liquidity built on hot money, he added, is unreliable. He described the current fluctuations in the exchange rate as temporary and said the recent movements do not represent a stable or lasting trend. He also explained why prices rarely decline when the USD does — importers and traders raise prices immediately when the exchange rate rises but are reluctant to lower them when it falls, as they cannot rely on short-term movements to plan future imports or open new letters of credit.

Al Ahly Pharos Head of Research Hany Genena said the recent volatility is a completely natural reaction to developments in US markets. He noted that Friday saw sharp declines in high-risk assets — US stocks dropped by about 900 points, cryptocurrencies fell 20-40%, and oil prices slid 3-4% — which likely triggered outflows from emerging markets, including Egypt. He explained that this does not reflect any negative sentiment toward Egypt but rather normal market rebalancing. He added that the turmoil originated in global markets and merely echoed in Egypt. Genena believes the USD at around EGP 46-47 remains reasonable for now and could even move toward the 45 mark if Suez Canal revenues recover in 2026.

Local gold prices have mirrored the USD’s movements. The local price of gold jumped 3.5% last week, in line with a 3.4% global increase, marking the eighth consecutive week of global gains. Every 10-piaster increase in the USD adds EGP 9-11 to gold prices, head of gold trading platform iSagha Saied Embaby said. With the USD once again nearing the EGP 48 mark, further gains in local gold prices are likely, supported by strong global momentum and renewed buying activity.

Fahmy added that while gold and the USD usually move in opposite directions globally, in Egypt they tend to rise together. Because gold is priced in USD, any increase in the exchange rate pushes local gold prices higher. In times of currency volatility, investors also tend to move toward gold as a safe haven, amplifying the price gains.

Global developments are adding pressure: The USD’s strength is also being supported by global developments, particularly rising tensions between the United States and China, an unnamed source told us. China’s recent threat of countermeasures against new US trade policies has created inflationary concerns that could make the US Federal Reserve more hesitant to cut interest rates, the source added. As a result, the USD could remain strong in the short term.

Hot money is still driving the market: Fahmy said recent volatility likely stemmed from changes in short-term capital flows or external obligations such as debt payments. The recent swing, he said, could easily reverse within a day, as such movements do not yet reflect a sustained trend. He warned that continued reliance on hot money is risky and that Egypt remains vulnerable to sudden outflows, as happened in previous years.

Meanwhile, in the debt market, the Central Bank of Egypt auctioned off EGP 116.6 bn worth of treasury bills with tenors of six and twelve months.

DATA POINT- The surge in USD demand pushed Interbank USD transactions yesterday to USD 458 mn, exceeding the typical daily average of USD 150-200 mn, according to Al Arabiya.