Egypt's currency seems unlikely to rebound substantially from 3-1/2 year lows any time soon because investor appetite for Egyptian assets may be blunted by uncertainty before a 2011 election -- and the central bank may prefer a weaker pound.
The Egyptian pound (EGP) has marked a series of lows against the dollar in the past two weeks, partly because of a firmer dollar globally as weakness in the US economy prompts safe-haven flows into US Treasuries. Last Thursday, the pound fell as low as 5.7056 after touching 5.7057 on Tuesday, its lowest level since January 2007.
Other factors are less positive for the pound, however. Egypt's political future is less certain after three decades of stability under 82-year-old President Hosni Mubarak, who has not said if he will stand for a new six-year term in the presidential election due sometime next year.
Many Egyptians think his son Gamal, 46, will take his place and continue a policy of economic liberalization combined with strong state control over society and politics.
Father and son have both denied any plan for a family succession, however, and the eventual transfer of power is seen by many investors as a significant long-term political risk.
Traders say the central bank often intervenes indirectly to keep the pound at a preferred level via Suez Canal Bank, which receives dollar receipts from the Suez Canal Authority, and Arab African International Bank. The central bank does not comment on such interventions.
However, Vallee and others said they would be surprised if the pound fell as low as 5.82, last touched in early 2005 when the currency was recovering from a sharp drop that followed the introduction of a free float.
According to World Bank statistics, 40 percent of Egypt’s population already lives under the poverty line (set at US$1 per day per capita).
