Egypt's central bank warned on Wednesday it was prepared to intervene directly in the currency market again after purchases on Tuesday strengthened the pound by more than one percent.
The Egyptian pound has been falling steadily since the eruption of political protests on Jan 25, and traders and strategists expect more losses. UBS analysts put the potential decline at as much as 25 percent within a month.
"We will intervene when we see the market is not orderly. If it is not, we will use our tools," Deputy Governor Hisham Ramez said by telephone, adding the market so far on Wednesday was quiet and orderly.
He said the central bank was concerned that the market be based on "real supply and demand".
"Yesterday the market was more speculative, so we came in," Ramez said.
On Wednesday, the pound was trading at 5.878 to the dollar compared to 5.876 after Tuesday's intervention, which boosted the currency as much as 1.4 percent after it hit a six-year low.
Dealers said traders were holding back on Wednesday after the intervention caught many players out.
"There is very small volume and very small amounts," said currency dealer at a Cairo-based bank. "I think the banks are being cautious until real activity starts."
"People are a bit scared so far," said a dealer at a second bank.
Egypt's banks and treasuries reopened on Sunday after having shut their doors for a week, and traders said the intervention seemed designed both to deter speculators and to restore confidence before the stock market reopens next week.
The fate of the pound could also play a big role in determining the extent to which shares are hurt by the crisis.
Analysts have warned of a renewed sell-off by spooked investors once trading resumes on the stock exchange after a two-week closure. The benchmark index plunged by 16 percent in the two days the exchange was operating after anti-government protests erupted on January 25.
Egypt's financial regulator said the stock exchange will suspend trade for a half hour if its broad 100-share index declines by 5 percent after it reopens, and even longer if it falls by 10 percent.
Asked if he was concerned about the resumption of share trading, Ramez said: "I think we passed through the toughest time when we saw the bank closure."
Traders said the central bank had intervened without dipping into foreign reserves, and one trader estimated the size of the intervention at "not less than $1 billion and not more than $1.6 billion."
"This will make people think twice before taking positions on the dollar," the trader said.