Egypt pound trades near six-year low after protests

Reuters, Ahram Online, Thursday 30 Jun 2011

Analysts say that clashes in Tahrir square as well the cancellation of the IMF loan are behind the struggle of the Egyptian pound

(Photo: Reuters)

The Egyptian pound moved within reach of a 6-year low after violent protests rocked central Cairo on Wednesday and following a government decision last week not to borrow $3 million in credit offered by the IMF.

The pound traded as low as 5.9705 to the dollar, approaching the six-year low of 5.9765 it reached briefly on March 30 and traders say 5.97 is an important resistance level that if substantially breached could send the pound much lower.

The pound is also struggling against the Euro, which hit a 3 week high on Thursday as concerns of a Greek debt failure started to fade.

Some of the pound's weakness "was related to Wednesday's events in Tahrir Square," one currency trader says.

The violence may delay the return of tourists, an important pillar of foreign exchange earnings, in the wake of the Egyptian popular uprising earlier this year.

"The market had also been expecting an inflow of dollars from the IMF agreement, so the announcement it was cancelled contributed to the downside," he added.

A currency analyst outside of Egypt said the purchase of dollars at the close of the 2010/11 fiscal year, which ends on June 30, has also put pressure on the pound.

Traders say the central bank, which they say supports the pound indirectly through several local banks, is loath to allow the pound to fall below the 5.97 resistance level, but may have to rethink its stance if Egypt's foreign reserves turn out of have fallen substantially when end-June figures are released next week.

At the end of May, the country's foreign reserves reached $27.2 billion, down from $28 billion in April; which compares favourably with the fall of around $2 billion seen between March and April.

For the moment, Egypt remains within safe reserve limits, able to cover six months of imports. The international average is for between six and nine months.


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