Recent movements in the Egyptian pound reflect temporary capital-flow pressures linked to regional developments rather than structural economic weaknesses or shortages in the domestic market, Hany Geneina, head of research at Al Ahly Pharos, told Ahram Online.
He explained that the current exchange-rate dynamics differ from previous crises, noting that the Central Bank of Egypt (CBE) is no longer defending the currency through heavy reserve depletion but allows market supply and demand to determine the rate.
Geneina described the approach as “the best performance by the CBE in its history,” saying exchange-rate flexibility helps the market absorb shocks and encourages foreign investors to return once stability is restored.
Following the regional escalation, the US dollar rate in Egypt rose over five percent, closing at EGP 53 per USD on Monday before declining to EGP 52 per USD on Tuesday. The move came as about $1 billion of foreign investments exited Egyptian T-bills offered through the stock exchange.
By comparison, during the early phase of the Russia–Ukraine war in March 2022, around $22 billion in foreign investments left the Egyptian market, forcing the CBE to adjust the exchange rate from about EGP 15.7 to EGP 18.5 per dollar before a parallel market emerged.
A silver lining
Geneina said the recent depreciation of the pound provides foreign investors with an “investment discount,” as local asset prices, including equities, have declined.
Egypt’s foreign reserves currently stand at around $53 billion at the CBE, mainly to absorb current-account shocks such as financing imports of strategic goods. The current-account deficit is expected to narrow to around $10–11 billion in 2025, down from more than $24 billion in 2024, supported by stronger commodity exports and improved tourism revenues, according to Geneina.
He noted a secondary reserve buffer of about $17.3 billion could absorb financial-account shocks, particularly short-term movements in government debt investments. With real returns on Egyptian debt at around 7–8 percent under the International Monetary Fund (IMF) reform programme, Geneina expects foreign investors to remain interested.
The government may also accelerate investment deals or asset sales to attract additional foreign-currency inflows, including potential Gulf investments across sectors.
Dollar rate and inflation risks
Hanan Ramsis, a capital markets expert at Al-Horreya Securities, warned that prolonged geopolitical tensions could push the dollar toward EGP 58 and drive inflation higher. She estimated inflation could rise to 28–30 percent due to increasing global energy, transport, and shipping costs.
Ramsis also noted that sustained instability could affect Egypt’s key foreign-currency sources, including tourism, remittances from Egyptians abroad, and Suez Canal revenues. Some short-term foreign investments had already begun leaving local debt markets and could accelerate if uncertainty persists.
Despite the pressures, she said, there are currently no signs of a parallel currency market returning, as authorities have tightened oversight and criminalized foreign-currency trading outside the banking system.
She also expects the CBE to keep interest rates unchanged at its next meeting, as raising rates would challenge efforts to reduce domestic debt and narrow the budget deficit.
Tarek Metwally, banking expert and former deputy chairman of Blom Bank Egypt, told Ahram Online that attracting new foreign investments remains challenging under current geopolitical conditions, with the priority being to preserve dollar liquidity and meet external obligations.
He emphasized that stability in the foreign-exchange market is more important than the precise level of the dollar.
Inflation jump anticipated
Metwally noted that higher shipping costs linked to regional tensions could temporarily push inflation upward, but said Egypt’s economy appears capable of absorbing the shock, having been on a stable trajectory before the escalation. The banking sector’s net foreign assets, at around $29.5 billion, provide a strong buffer against short-term capital outflows.
Metwally also ruled out the re-emergence of a parallel market for foreign currency, saying the decisive factor for exchange-rate stability remains the availability of dollars within the banking system.
Hassan El-Shafei, board member of the Egyptian Businessmen’s Association, said the government’s recent fuel-price increases could put additional pressure on inflation.
He estimated that the adjustments could raise inflation by 5–20 percent, as higher fuel costs feed into transport, logistics, and production expenses across various sectors.
El-Shafei added that rising global oil prices, approaching $80 per barrel, combined with higher shipping costs, could further increase import and production expenses, which would ultimately be reflected in domestic prices.
He warned that if the regional conflict continues for more than three weeks, the dollar could approach EGP 60, due to pressures on energy markets and potential effects on Egypt’s foreign-currency inflows from tourism, remittances, and Suez Canal revenues.
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