EGP reclaiming its carry trade darling title? The EGP continues to be an appealing carry trade, with USD softness, rising remittance and tourism revenues, and nominal yields all coming together to build a case for the currency, UBS said in a report seen by EnterpriseAM. Emerging market currencies have been on the rise in the first half of the year, yielding higher total returns despite a slight stagnation in July, according to the report.

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The EGP offers an attractive nominal yield of 19% annualized over three months, which will maintain its appeal even as the Central Bank of Egypt cuts interest rates and as the US Federal Reserve also pushes forward with its monetary easing, the report highlights. A stable exchange rate makes the currency more appealing as the EGP’s real effective exchange rate will unlikely need adjustments as it remains near its post-devaluation lows, UBS says. “Low volatility in an exchange rate is beneficial for carry trades, as expected risk-adjusted returns look more favorable,” according to the report.

ALSO- Geopolitical tensions have relatively eased since the ceasefire agreement between Israel and Hamas earlier this month, the report notes. Meanwhile, the trajectory for Suez Canal revenues remains unclear, after falling sharply in FY 2024-2025.

REMEMBER- The IMF has recently upgraded its forecast for Egypt’s GDP growth to 4.5% in FY 2025-2026, with Egypt’s external position holding up strongly against the USD due to increased inflows from remittances and tourism. Inflation is also forecast to slow down to 11.7% next year.

Risks still abound: Egypt continues to face external and fiscal deficits as elevated borrowing costs remain a challenge, along with a resource strain caused by pressures on agricultural produce and energy, the report says. In addition, our proximity to geopolitical conflict areas still remains a monitored threat. UBS also notes that “challenges to the positive global market risk sentiment in recent months — for example due to trade tensions or credit quality worries, or an end to the overall carry supportive backdrop … could lead investors to pull funds from Egypt and could negatively impact the EGP.”

Appetite for EM currencies and equities is expected to continue growing over the next12 months, Goldman Sachs said in a recent report, while the IMF expects global economic growth rates to reach 3.2% in 2025, global trade outperforming expectations, and another rate cut from the US Federal Reserve, UBS said.

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