Egypt Pound Slips To Weakest In Almost Eight Years

Egypt’s currency weakened on Tuesday to its lowest against the U.S. dollar since 2004, and traders and analysts speculated the central bank may have resumed a policy of allowing a gradual depreciation.

The Egyptian pound was bid as low as 6.114 to the dollar on Tuesday compared to a close of 6.110 the day before.

After having barely moved for much of the year following Egypt’s popular uprising, the pound edged weaker for three months starting in early June before stabilising at around 6.09-10 to the dollar.

The uprising that ousted Hosni Mubarak in February 2011 chased away tourists and investors, two of the country’s primary sources of foreign currency. Since then the pound has weakened by less than 5 percent, and economists say it is still substantially overvalued.

The central bank since early 2011 has spent more than half its foreign reserves to support the currency.

Egypt’s government has asked the International Monetary Fund for a $4.8 billion loan partly to help it to plug its balance of payments deficit, and an IMF team is now in Cairo for talks.

“I think EGP is heading to further lows gradually, even if the IMF comes in, until real sources (of foreign exchange) help it gain more ground,” said a trader in the treasury of a Cairo-based bank.

Traders have said that by letting the Egyptian pound slip, the government seems to be signalling to the IMF it is prepared to be flexible over the currency’s value. The pound on Tuesday was at its lowest since Dec. 30, 2004.

The central bank has spent more than $20 billion in foreign reserves to support the pound since the uprising. President Mohamed Mursi said in August that the pound would not be devalued.

The central bank rarely intervenes directly to control the pound’s price against the dollar, but dealers say it often uses state-controlled banks to keep it from weakening.

Reuters