Egyptian pound to weaken by end of the year as geopolitical tensions rise: BMI

Cairo – August 12, 2024: The Egyptian pound is projected to weaken against the US dollar through the remainder of 2024, according to recent analyses by the research firm BMI, affiliated with Fitch Solutions.

The firm's report forecasts that the exchange rate could range between LE 47.9 and LE 49.5 against the USD, a decline from their earlier prediction of LE 46.5 to LE 47.5 against the greenback.

BMI attributes this potential decline to ongoing geopolitical tensions in the Middle East, including the double Israeli attacks on Beirut and Tehran, which have intensified risks in the region, leading to a 2 percent drop in the pound's value.

The firm warned that continued unrest, particularly in Gaza and along the Israeli-Lebanese border, could perpetuate instability and investor concerns about Egypt’s economic outlook.

A ceasefire in Gaza could significantly improve the situation, BMI added, noting that it would likely restore normal navigation in the Red Sea and boost tourism, which could strengthen the pound and bring the dollar's price to about LE 47.5.

Looking ahead, Fitch Solutions presents two potential scenarios for 2025. An optimistic scenario, marked by a rapid de-escalation of conflicts, could see the pound strengthen to a range of LE 46.50 to LE 48.50 per dollar. If tensions persist or escalate, the pound could weaken further to around 49.50, potentially reaching LE 55 against the USD in the short term.

The pound’s weakness will mainly reflect Egypt’s large external financial needs, including a large trade deficit and high debt repayment bills, BMI explained.

The Egyptian economy continues to deal with the repercussions of regional fighting, with last week’s sharp outflow of foreign investments amid news of a possible US recession and expanding tensions in Israel, Gaza, Beirut, and Tehran.

In April 2024, foreign holdings of Egyptian treasury bills had amounted to approximately $35.6 billion, a significant portion of Egypt's foreign exchange reserves. Reserves saw a sharp decline of $4 billion in June due to concerns over regional security, exacerbating the pressure on the pound.

The Suez Canal, a crucial revenue source for Egypt, also suffered due to the geopolitical tensions, with monthly losses estimated at $400 million since December 2023.

As of July 2024, Egypt’s foreign exchange reserves reached a record $46.5 billion, providing a buffer against fluctuations and ensuring that the pound remains relatively stable.

The Central Bank's recent liberalization of the exchange rate, intended to eliminate black market activity and address the external financing gap, has led to a significant rise in the dollar’s value against the pound, from LE 30.94 to approximately LE 49.35 since the start of the year.